Analysis: China's Rebound Has a Distinct Cool Factor

HONG KONG, July 28 (Reuters) - The first seven months of 2025 have delivered a whirlwind of news on Chinese technology and business, oscillating between anxiety and euphoria, but what has cut through the noise has been the emergence of a "cool factor".

In January, TikTok suspended its U.S. services for one day, when the outgoing administration shut down the app due to its ties to China, before the decision was swiftly reversed by the incoming Trump administration.

Days later, Chinese artificial intelligence company DeepSeek shocked the world with its cost-effective, high-performance R-1 reasoning model, triggering an intense debate about who will lead the “AI race”.

And then in early May, U.S.-China tensions reached unprecedented heights, as tariffs jumped above 100%, effectively halting bilateral trade, before de-escalation.

By summer, however, China was once again exporting critical rare earth to the U.S. and Nvidia had re-started the sales of its AI chips to China, suggesting a burgeoning trade detente between the world’s two largest economies.

Amid this volatility, China’s capital markets have responded favorably. The MSCI China Index has surged around 25% year-to-date through July 25, outpacing the MSCI All-Country World index’s 12% gain and the S&P 500 index’s 9% rise.

Notably, this strong performance has been driven not just by typical business-cycle fluctuations, but also an appeal rooted in innovation, collaboration and youth culture, suggesting China’s next growth cycle could look very different from those in the past.

- Author: Taosha Wang