By Dawei Weng
The latest annual reporting season in China has laid bare a corporate landscape in the throes of a “great reconstruction”. The era of seeking merely to “survive the coming years” is over. In its place, a new vocabulary is emerging from the country’s biggest companies, one dominated by the security imperative, friend-shoring, and a deepening K-shaped divide.
The most candid assessments came from a surprising source: the white goods sector, a veteran of global competition. Midea Group (000333.SZ) (0300.HK), one of China‘s largest appliance makers, described the 2025 storms as “more violent than imagined”, citing tariff volatility, AI disruption and intensifying geopolitical conflicts. Yet the group still posted record profits. Its annual report was titled simply: “We will always find a way.”
Haier Smart Home (6690.HK) echoed the sentiment, noting that “the old trade paradigm is gone.” The era of centralised, efficiency-driven supply chains is being replaced by a fractured landscape where security and resilience trump cost. For every Midea, however, there are many more struggling.
A K-shaped divide
The textile champion Shenzhou International (2313.HK) laid out five mounting pressures: weak demand, fierce price competition, rising labor costs, currency volatility and U.S. tariff uncertainty. Notably, unlike Midea, it offered no triumphant turnaround. The K-shaped divergence is stark.
At the bottom lies the property sector and related industries. Property giant China Vanke (000002.SZ) logged nearly 100 billion yuan ($13.8 billion) in losses, citing high land costs, falling margins, writedowns and struggling non-core businesses. Home furnishing retailer Red Star Macalline (601828.SH) (1528.HK) suffered huge losses, not just from falling rents but from a 23.4 billion yuan writedown on investment property as future income expectations collapsed. Even a Hong Kong MTR Corp (0066.HK) shopping mall in Shenzhen failed to find a buyer at auction.
Winners on the upside
Yet the other arm of the K is soaring. Resource giants are benefiting handsomely. Zijin Mining (601899.SH) (2899.HK), now a trillion-yuan market cap company, issued a zero-coupon convertible bond at a negative yield – effectively getting paid to borrow – thanks to investor hunger for its equity upside. The miners describe a “structural revolution” in demand, driven by the energy transition and the AI era.
New retail models are also thriving. Snack discount chains are expanding at breakneck speed, opening thousands of outlets annually, with some 60% located in China‘s counties and townships. Meanwhile, leading biotech firms are striking novel deals with local governments, where the state builds factories for them to lease before buying back over two decades – preserving precious R&D cash.
What separates the winners from the losers? Adapting to the changing dynamics of the era. These dynamics rest on three pillars.
First, security. Zijin Mining argues that critical minerals have become a focus of competition between major powers, shifting the global mining industry from globalization to a landscape defined by rival blocs and fragmentation. Supply chains are being rebuilt around safety, resilience and efficiency – in that order. It is no coincidence that these same priorities appear in China‘s latest five-year plan.
Second, trade. Haier predicts a shakeout as tariffs and geopolitics dismantle centralised supply chains, eventually leading to a new, higher-cost equilibrium. Electronics designer and manufacturer Universal Scientific Industrial(601231.SH)highlights “friend-shoring”, as clients move production to trusted nations. Globalisation may not be dead, but now you choose your friends.
Hard AI and the Chinese multinational
Third, the AI infrastructure build-out. Hon Hai Precision Industry (2317.TT), Apple’s largest supplier and the world’s largest contract electronics manufacturer, notes that generative AI is shifting computing demand from general purpose to high-performance, positioning AI hardware as the core foundation of the digital economy. China‘s market is rewarding hard AI – chips, optics and power equipment – over software, in contrast to the U.S. focus on AI applications and models.
For companies outside the AI supply chain, the path forward is to become Chinese-origin global companies. This means achieving three levels of localisation: manufacturing, supply chain and, crucially, R&D. The experience of the 2025 tariff shocks showed that companies deeply embedded in overseas economies could weather the storm. As one medical device maker put it: “De-globalisation does not bring closure, but deeper localisation.”
The lingering question of innovation
Even so, challenges remain. Overseas labour is often more expensive and less efficient, and tariffs can still find you. Yet the alternative – staying purely domestic in a K-shaped, security-obsessed world – appears worse.
The deeper worry, though, is whether China can produce enough true breakthroughs – in drugs, AI models, core technology – to capture the fattest profits, rather than just the manufacturing “dregs.” Battery giant CATL (3750.HK) argues that long-term value lies not just in quality manufacturing but in redefining batteries as basic units of an energy infrastructure system. That vision, however, requires imagination.
So while the journey of reconstruction has begun, the ultimate destination – a new era of source-led innovation – remains some way off. “We still have so far to go,” Midea wrote in its annual report, adding: “Yes, but look how far we‘ve come.”
