Industrial Securities: What investment opportunities will the outbound chain have in 2026?

1. China’s Foreign Trade Moves Toward Diversification and Upgrading

In 2025, despite a complex external environment, China’s foreign trade continued to outperform expectations, demonstrating strong resilience. Facing sluggish global economic recovery and escalating tariff frictions, China’s total exports reached a record high, up 5.5% year-over-year. During the same period, China’s trade surplus first exceeded $1 trillion, a significant increase of 19.8% year-over-year.

Foreign trade has become a key engine of economic growth. On a macroeconomic level, in 2025, net exports of goods and services contributed 1.64 percentage points to GDP growth, the second-highest level since 2007, only behind 2021. At the listed company level, export chain profits in Q3 2025 grew by 12.96%, markedly outperforming the non-financial A-share market (1.92%), maintaining a nine-quarter streak of leadership, with the growth gap widening to 11.03 percentage points.

Regionally, the diversification of external demand further strengthened. Emerging markets’ incremental exports effectively offset reductions in the U.S. market. Due to tariff and trade frictions, China’s direct exports to the U.S. declined sharply by 19.79% YoY in 2025, dragging overall export scale down by 2.91%. The U.S. share of China’s exports further decreased by 3.53 percentage points to 11.15%. Meanwhile, emerging markets experienced rapid growth, becoming new pillars of export expansion. Exports to Africa, ASEAN, and the Middle East grew by 25.9%, 13.64%, and 9.7% respectively, contributing 1.29%, 2.24%, and 0.64% to total export growth. Additionally, China’s exports to the EU steadily recovered, increasing by 8.57% YoY, positively contributing 1.43% to total exports.

Product-wise, China’s foreign trade structure continued to ascend the value chain, with mid-to-high-end products performing prominently. In 2025, electrical machinery, mechanical equipment, automobiles, and ships remained the main export drivers, contributing 44.10%, 17.67%, 16.05%, and 6.99% respectively to total exports. Conversely, traditional light industries such as furniture, toys, and socks experienced noticeable declines due to tariff frictions and industrial chain relocation.

Breaking down by end-market, ASEAN absorbed spillovers from China’s industrial chain and served as a trade re-export hub, making significant contributions to exports of key commodities. Other emerging markets are also becoming new growth poles for China’s core industrial exports such as automobiles, ships, and electrical appliances. The reindustrialization and energy transition in Europe have driven demand for green industrial products, while aging populations have expanded China’s pharmaceutical imports. Beyond copper demand driven by market arbitrage, U.S. demand for China’s key export commodities has shown varying degrees of decline.

2. High-Confidence Opportunities in China’s Outbound Chain in 2026

2.1 Global Supply Chain Restructuring

Amid normalized geopolitical competition, the global industrial system is undergoing a profound shift from “efficiency-first” to “security and independence,” which will continue to generate substantial demand for infrastructure and industrialization projects. Developed countries in Europe and America advocate for reindustrialization and are shifting supply chains to emerging markets under principles of “nearshoring” and “friendshoring.” Coupled with the Federal Reserve’s easing cycle, this will further unlock long-term financing and expansion potential suppressed by high interest rates in emerging markets.

In this context, China’s export structure has adapted accordingly: the share of consumer goods has narrowed, while intermediate and capital goods supporting global manufacturing supply chain rebuilding have gained dominance.

Thanks to technological breakthroughs and scale effects, China has captured significant market share in rapidly growing industrial categories such as electric vehicles, batteries, semiconductors, ships, and machinery since 2018.

On the other hand, global supply chain restructuring has accelerated Chinese companies’ capacity globalization. Based on the number of announcements of capacity and subsidiary construction in ASEAN, India, and Mexico by A-share listed companies, China’s outbound capacity projects reached 229 in 2025, nearly doubling from 2024. Outbound capacity is not merely a supply chain shift but an extension of China’s domestic supply chain, requiring large imports of Chinese equipment during construction and ongoing imports of intermediate goods post-commissioning.

Main destinations include ASEAN, Mexico, and India. Data on import-export share changes and factory construction show ASEAN’s comprehensive absorption of Chinese industrial spillovers across textiles, home appliances, consumer electronics, and automobiles. Mexico and India exhibit more sector-specific patterns, mainly involving China’s automotive and consumer electronics supply chains respectively.

Overall, China’s manufacturing is increasingly intertwined with the current supply chain construction, making this deep linkage difficult to sever. Instead, outbound expansion further tightens China’s role from “final product exporter” to “global provider of basic industrial components,” driving a strategic shift.

2.2 AI Expansion Cycle

Supported by overseas economic activity, AI hardware remains one of China’s core themes in the capital markets. However, since late last year, market concerns about the sustainability of the AI expansion cycle have persisted, mainly worries that overseas giants’ arms races in computing power and large-scale capital expenditures could strain corporate balance sheets.

Looking ahead, from a macro investment scale, listed company financials, and liquidity environment comparison, the AI expansion cycle still shows resilience and can support high growth in AI hardware.

On a macroeconomic level, despite a significant surge in capital expenditure in computers, communications, data centers, and IT processing equipment relative to U.S. GDP, it remains below the levels seen during the tech bubble.

At the listed company level, although tech giants’ debt-financed capital spending has raised market concerns, their balance sheets and cash flows remain healthy compared to the dot-com bubble era. As of Q3 2025, the net debt-to-equity ratio and net debt/EBITDA of the S&P 500 information technology sector are still below 1990s levels. Moreover, major tech leaders’ ample free cash flow can cover capital expenditures, with CAPEX as a proportion of free cash flow still below the peak during the dot-com bubble.

In terms of liquidity, current conditions are notably better than during the dot-com bubble: in 1999, the Fed’s rate hikes (175 basis points within a year) sharply increased financing costs, hastening cash depletion for internet companies. Today, the Fed is in a rate-cutting cycle, and the risk of liquidity tightening hindering AI firms’ financing in 2026 is low.

Furthermore, recent guidance from major tech giants indicates sustained high capital expenditure in 2026, with new technologies and demands accelerating industry development. In 2025, leading cloud service providers increased their capital spending significantly, with total expenditures reaching $359.2 billion. In 2026, Amazon, Google, Meta, and Microsoft project combined capital expenditures of approximately $598.7 billion, a 67% YoY increase, reflecting a strong demand for AI computing power under the arms race logic.

Meanwhile, the impact of high growth in AI capital expenditure is propagating upstream and downstream: upstream, soaring electricity demand for AI in the U.S. is boosting demand for grid and energy storage equipment; downstream, domestic manufacturing leaders are benefiting as AI hardware shipments continue to rise, with sectors like humanoid robots and consumer electronics poised to gain.

2.3 AI Expansion Cycle

Beyond product exports and capacity spillovers, another major trend for Chinese companies going abroad is comprehensive cultural and technological value output.

Cultural exports include IP overseas (such as trendy toys and games) and lifestyle exports (new dining concepts, internet e-commerce).

• Trendy Toys: Leading companies like Pop Mart have successfully entered international markets through localized operations and innovative IP design. In H1 2025, overseas revenue share exceeded 40% for the first time, with overseas growth significantly outpacing domestic.

• Gaming: According to the “2025 China Gaming Industry Report,” China’s self-developed game sales revenue abroad reached $20.455 billion, up 10.23% YoY, maintaining over 100 billion RMB for six consecutive years. Deep integration of AI technology is reshaping production pipelines, accelerating content generation, and greatly improving localization efficiency, effectively reducing marginal costs of going abroad.

• New Dining: Brands like Mixue Bingcheng rapidly capture market share in nearby markets like Southeast Asia by offering high-quality, affordable new tea drinks, meeting young consumers’ demand for fresh experiences and social spaces.

• E-commerce: Platforms like Temu and Shein leverage China’s strong light industry supply chain, applying C2M (consumer-to-manufacturer) models to globalize the “fast, good, cheap, and efficient” value proposition, exporting not only products but also China’s efficient fulfillment standards and recommendation algorithms.

Simultaneously, technological outbound efforts, exemplified by innovative drug BD, are gaining attention. In 2025, China’s innovative pharmaceuticals deeply integrated into the global industry chain, pursuing both self-initiated exports and license-outs. Several new drugs achieved commercialization in the U.S. and Europe, with increasing transaction values and volumes, making China a key global supplier of innovative medicines. Looking ahead to 2026, more large-scale export opportunities for major products are anticipated.

3. Sub-sectors of Outbound Chains Worth Watching

Considering rising trade protectionism and potential RMB appreciation impacts, we select industries with high overseas profitability and strong willingness to expand abroad based on overseas gross profit margins.

Based on multiple factors—overseas demand, gross profit margins, and factory construction data—certain sectors in 2026 show strong outbound expansion prospects, including new energy (batteries, grid equipment), machinery (construction machinery, specialized and general equipment, automation), TMT (electronics, communications, gaming), as well as innovative pharmaceuticals, new consumer sectors, shipbuilding, commercial vehicles, auto parts, and chemicals.

Within these sectors, we further analyze based on order backlog and earnings expectations to identify industries likely to accelerate performance in 2026.

Order backlog perspective: using contract liabilities and advance payments as indicators, historical data shows that the growth rate of non-financial A-share order backlog can lead performance growth by about 1.2 quarters, reflecting operational activity. We focus on industries with high order growth in Q3 2025 and positive trend in recent quarters.

Consensus expectations: based on Wind’s consensus forecasts, we highlight sectors with projected performance growth over 30% in 2026 and improvements compared to Q3 2025.

Finally, considering 2026 performance outlook and current valuation levels, we emphasize investment opportunities in the commercial vehicle, battery, engineering machinery, chemical pharmaceuticals, and gaming sectors.

Risk Warnings

Unexpected changes in domestic and international economic data, and overseas trade policy shifts.

(Source: Industrial Securities)