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

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

By 2025, despite a complex external environment, China’s foreign trade continues to outperform expectations, demonstrating strong resilience. In 2025, facing sluggish global economic recovery and escalating tariff disputes, China’s total exports reached a record high, increasing by 5.5% year-over-year. During the same period, China’s trade surplus first surpassed $1 trillion, a significant 19.8% increase 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%), marking nine consecutive quarters of leadership, with the growth gap widening to 11.03 percentage points.

Regionally, the diversification of external demand further strengthened. Emerging markets effectively compensated for declines in the U.S. market. Due to tariff and trade frictions, China’s direct exports to the U.S. in 2025 declined sharply by 19.79%, dragging overall exports 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 are steadily recovering, with an 8.57% increase, positively contributing 1.43% to total exports.

In terms of product structure, China’s foreign trade continues to shift toward higher value-added products, with notable performance in mid-to-high-end manufacturing. 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 industry products such as furniture, toys, socks, and shoes saw significant declines due to tariff disputes and industrial chain relocation.

Breaking down by end markets, ASEAN’s absorption of Chinese industrial chain spillovers and trade re-exports contributed major incremental exports across key commodities. Other emerging markets are also becoming new growth poles for China’s automotive, shipbuilding, and electrical industries. 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 Supply Chain in 2026

2.1 Global Supply Chain Reconfiguration

Against the backdrop of 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 infrastructure and industrialization demand. 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 rate cuts, this will further unlock long-term financing and expansion potential in emerging markets previously constrained by high interest rates.

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 reconstruction have become dominant.

Benefiting from technological breakthroughs and scale advantages, China has rapidly increased its market share in key industrial categories such as electric vehicles, batteries, semiconductors, ships, and machinery since 2018.

On the other hand, the global supply chain reconfiguration has accelerated Chinese enterprises’ global capacity deployment. According to announcements from A-share listed companies establishing capacities or subsidiaries in ASEAN, India, and Mexico, the number reached 229 in 2025, nearly doubling from 2024. Chinese capacity going abroad is not merely a supply chain shift but an extension of domestic supply chains, requiring large imports of Chinese equipment during factory setup and ongoing imports of intermediate goods post-commissioning.

ASEAN, Mexico, and India are the main recipients of Chinese capacity expansion. Data on import-export share changes and factory establishment show ASEAN’s comprehensive absorption of Chinese industrial spillovers across textiles, home appliances, consumer electronics, and automobiles, while Mexico and India exhibit more specialized “single-track” features, focusing respectively on automotive and consumer electronics supply chains.

Overall, Chinese manufacturing is increasingly intertwined with the current supply chain construction, making this deep linkage difficult to sever. Instead, it becomes more tightly integrated through outward expansion, further transforming China from a “final product exporter” to a “global provider of basic industrial infrastructure.”

2.2 AI Expansion Cycle

Supported by overseas market strength, AI hardware—particularly computing power—is one of the core themes in China’s capital markets today. 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 compared to historical data, 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 AI-related areas, the overall investment in computer, communication, data center, and information processing equipment as a share of U.S. GDP remains below the levels seen during the dot-com bubble.

At the listed company level, although tech giants have increased capital expenditure through debt financing—raising market concerns—their balance sheets and cash flows remain healthy compared to the dot-com era. As of Q3 2025, the net debt-to-equity ratio and net debt/EBITDA of the S&P 500 information technology sector are below 1990s levels. Moreover, major tech leaders still generate ample free cash flow to 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 significantly better than during the dot-com bubble: in 1999, the Fed’s rate hikes to prevent overheating increased financing costs rapidly, leading to cash burn among internet companies. Today, the Fed is in a rate-cutting cycle, and the risk of liquidity tightening hindering AI company financing in 2026 is low.

Additionally, recent guidance from major tech giants indicates sustained high capital expenditure in 2026, driven by new technologies and demand in the industry chain. 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% year-over-year increase, reflecting 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 power 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 benefit.

2.3 AI Expansion Cycle

Beyond product exports and capacity spillovers, another major trend for Chinese companies going abroad is the comprehensive export of culture and technology.

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 accounted for over 40%, with overseas growth significantly outpacing domestic.
• Gaming: According to the 2025 China Gaming Industry Report, China’s self-developed games achieved $20.455 billion in actual overseas sales in 2025, a 10.23% increase year-over-year, maintaining a billion-yuan scale for six consecutive years. Deep application of AI 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, especially in Southeast Asia and nearby markets, have rapidly gained market share by offering high-quality, affordable new tea drinks, meeting local young consumers’ demand for fresh experiences and social spaces.
• Internet E-commerce: Platforms like Temu and Shein leverage China’s strong light industry supply chain, adopting 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.

At the same time, technological exports represented by innovative pharmaceuticals (BD) are gaining attention. In 2025, China’s innovative drugs deeply integrated into the global industry chain, with both self-initiated exports and license-outs, saw multiple new drugs commercialized in the U.S. and Europe, with increasing transaction volume and value, becoming a key supplier of global innovative medicines. Looking ahead to 2026, more large-scale export opportunities for major products are anticipated.

3. Which Sub-sectors in Outbound Expansion Are Worth Watching?

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

Based on multiple factors such as overseas demand, gross profit margins, and capacity building, in 2026, sub-sectors such as electrical new energy (batteries, grid equipment), machinery (construction machinery, specialized equipment, general equipment, automation), TMT (electronics, communications, gaming), as well as innovative pharmaceuticals, new consumer sectors, shipbuilding, commercial vehicles, auto parts, and chemicals, all present high-confidence outbound opportunities.

Among these, we further select sectors with potential for accelerated performance in 2026 based on order backlog and earnings expectations.

Order backlog perspective: measured by contract liabilities plus advance payments, which historically serve as leading indicators (by about 1.2 quarters) of performance growth, reflecting active production and operations. We identify sectors with high order growth in Q3 2025 and a positive trend in recent quarters.

Earnings expectation perspective: based on Wind consensus forecasts, we focus on sectors with expected performance growth over 30% in 2026 and showing improvement compared to Q3 2025.

In conclusion, considering both performance outlook and current valuation levels, we highlight investment opportunities in the sectors of commercial vehicles, batteries, construction machinery, chemical pharmaceuticals, and gaming.

Risk Warning

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

(Source: Industrial Securities)