Five years ago I bought an ETF called Hang Seng Tech, as my bet on China becoming a dominant force in technology. To date, it has been a drag on my growth sleeve.

The index’s three largest holdings today are a phone maker, a shopping site and the company that owns WeChat. This year’s technology trade has been chips, memory, servers, and the electricity to run them. Almost all of it is listed somewhere else: New York, Taipei, Shanghai, Shenzhen.

In June I wrote that I owned the wrong index, not the wrong businesses, and this was the China position I came closest to cutting. Then, on 10 August, Hang Seng Indexes published a consultation paper making the same case against its own rules: they were missing China’s faster-growing technology companies.

In its own language:

Within the Technology Universe, companies with stronger sales growth are often smaller by market capitalisation... This suggests that higher-growth companies with relatively smaller size may not be considered under a purely size-based selection.

Hang Seng Indexes is saying that its size test misses the fastest-growing companies, so it will stop relying on that test alone. Index providers do not often admit to being wrong. In consultation-paper language, “may not be considered under a purely size-based selection” is a shout.

What it published is a consultation, not a new rulebook. Responses close on 18 September, and the advisory committee can amend or reject any part of it. My own weighting is roughly 60 per cent that it goes through substantially as drafted, 30 per cent that it comes back materially amended, 10 per cent that it is watered down or slips past December.

I still own it. The paper changed my decision.

Why the index became the wrong wrapper

Standard Chartered’s wealth research put numbers on my complaint: the Hang Seng Tech index is roughly half internet and platform companies, about 15 per cent electric vehicles, and under a fifth upstream AI hardware and semiconductors. Mainland financial writers have a blunt name for that gap: the “delivery index” (外卖指数). The label stuck while its largest internet holdings were pulled into the food-delivery price war, and the index I owned missed the AI rally. In August, wallstreetcn and Securities Times described it as beginning to shed the name.

Hang Seng Indexes, the index arm of Hang Seng Bank, launched the Hang Seng Tech index on 27 July 2020, and the timing explains the design. Hong Kong was in the middle of a technology listing boom, mainland champions were arriving in numbers, and there was no simple way to buy the lot. So the compiler built one: take the 30 largest, put them in one basket, and let funds track it.

To qualify, a company had to sit in one of five industry classifications and pass one of three innovation tests: R&D worth at least 5 per cent of sales, revenue growth of at least 10 per cent, or a business built on a technology platform. The third is the generous one; a shopping site qualifies, and did. Everything that cleared was ranked by market value, the 30 biggest got in, and no single name was allowed more than 8 per cent of the index.

Inclusion came down to how big the company was. That is a defensible rule. It is also a backward-looking one, because a company’s market value is a record of what it has already become.

I bought the Hang Seng Tech ETF for the growth sleeve of my China book, where it sits alongside a CSI 300 ETF tracking mainland stocks. The individual Hong Kong names I own are a separate matter: they sit in my income sleeve. A fund was the deliberate choice. I wanted the whole complex rather than my best three guesses inside it, and I accepted going in that a rotten apple in a basket is not mine to remove.

The companies at the top of the index then went through a hard few years: regulation, a slowing Chinese consumer, and a price war in food delivery and ride-hailing that ate into profits at the names carrying the most weight. Alibaba is the obvious case. Meanwhile the cycle moved somewhere the index could not reach. The rally of the past two years has been about the hardware behind AI, and an index confined to Hong Kong listings and ranked by size was never going to catch much of it.

The index fell roughly 22 per cent in the first half of 2026, and I owned it while it fell. Over the same stretch the mainland boards ran the other way: the STAR 50 and ChiNext each rose more than a quarter, and the CSI 300, which I also own, was up too.

The compiler had already begun patching by hand: at the June review it dropped Kingdee and Kingsoft and added MiniMax and Zhipu, two AI model developers that listed here only in January. An index committee reaching for names its own rules would not have delivered is a signal about the rules. By June I was not asking whether the businesses were good. I was asking whether the wrapper was still worth owning.

The repair: 30 names become 50, through two doors

What Hang Seng Indexes has proposed is the largest change to the index since it launched. The index goes from 30 companies to 50, chosen through two doors instead of one. Forty seats go to the largest eligible companies by market value, as they do now. The remaining 10 go to the fastest revenue growers among eligible companies that missed the first cut.

The five existing industry classifications are scrapped on the reasoning that “technological endeavors extend beyond the traditional industry classifications”. Artificial intelligence is promoted from a sub-category to a theme of its own. And the pool of candidates narrows from every Main Board listing to the larger and mid-sized members of the Hang Seng Composite. The money tracking the Hang Seng Tech index has grown from about US$1.5 billion at launch to US$40.4 billion. Some of that is mine.

On the compiler’s own simulation, Advanced Hardware companies go from 5 to 15 and AI from 3 to 6. The top ten holdings fall from 70.6 per cent of the index to 66.3 per cent, and the median company shrinks from HK$118 billion to HK$70 billion. On those numbers the fund I own would hold three times the advanced-hardware companies and twice the AI companies it holds today.

Huatai Securities and CITIC have published simulated constituent lists built on the June data, and a multi-broker roundup in the mainland press converges on similar names. Every list is still an estimate.

CATL, the world’s largest battery maker, turns up in most of the market-value lists, which tells you how far the word tech is being stretched. Biren and Tianshu Zhixin, two young Chinese chip designers, turn up alongside it. My favourite detail is Kingdee, thrown out in June and simulated by Huatai to return in December. I own Kingdee outright, as an enterprise SaaS and AI play, and did not need the index’s permission to hold it, but note what the round trip means: Kingdee did not change between June and December; the committee’s rules did. That is how much of this list is made in a meeting room rather than in commerce.

One buried detail gives the compiler away a second time. At each quarterly review, an incumbent is not thrown out the moment it slips past the cut-off rank; it has to fall well past: 20 per cent past for the size names, 50 per cent for the growth names, while new names only get in by ranking clearly inside. The wider band for the growth names is the compiler admitting, in its own structure, that it expects them to swing.

One calendar point: the September review still runs the current 30-name rules. December is the first rebalancing that could use the new rules.

Taking on the Nasdaq, in ambition only

The obvious comparison is the Nasdaq 100, and it is half right.

The Nasdaq 100 holds the hundred largest non-financial companies listed on that exchange, ranked by size, with no thematic test. That is why it includes Costco. It lets winners run: Nvidia sits at roughly 8.7 per cent of the index. There is no hard cap on any single name; only when the companies above 4.5 per cent add up to more than 48 per cent of the index does Nasdaq trim them back.

Hang Seng Tech is reaching for the same breadth: 50 names, no industry test and AI as its own theme. It keeps the 8 per cent ceiling on any one company, 4 per cent for foreign companies, and still sorts the world into two dozen hand-written sub-themes. Caps like these are written by people who have watched a top holding go wrong. What December would deliver is a bigger, better-aimed curated basket.

What would make me wrong

The first problem is the venue. The index still picks only from Hong Kong listings, so Mainland AI chip designers, Cambricon and Hygon among them, stay outside unless they list here too. I found no dated statement from either company about Hong Kong plans. CXMT, China’s leading memory-chip maker, raised 57.9 billion yuan (about US$8.6 billion) on Shanghai’s STAR Market in July, Asia’s biggest IPO this year, and the shares rose 466 per cent on their debut. It listed in Shanghai. The reform is a listing incentive, not a geographic expansion.

The second problem is the size of the growth side. Those 10 fast-growing names carry 2.4 per cent of the simulated index between them, with a median market value of HK$29.1 billion. At 2.4 per cent, they do not yet change the index enough: it could keep 40 names and almost nothing would change. The real work is done by the 10 extra large companies and the change in theme mix. A trailing-year revenue screen will also favour recent listings off low bases, and rapid growth says nothing about the quality of the business, an objection I take seriously.

What I decided

I was close to giving up on Hang Seng Tech. The paper moved me from leaning-sell to hold. I am giving the index provider a second chance.

I am not adding. The reform changes what sits inside the basket, not whether the basket is cheap, and I was fully allocated before the proposed reshuffle arrived.

Three clocks now run. September gives the final rulebook. December gives the first rebalancing under it. Next year gives the real test: does the rebuilt index move when AI hardware moves? If not, it failed at the thing it was written to fix, and I re-underwrite. The question I cannot answer yet is whether the venue problem is ever solved; a Cambricon or Hygon listing here would be the first sign.

If the split, the scrapped industry test, and the caps survive the committee, the wrong index got righter, and I hold. If they do not, I will say so before December.

If you got something out of this, pass it to one person who owns a tech index and has never checked what is inside it. Word of mouth is how this publication grows.

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As of the date of publication, I hold positions in Alibaba, Tencent, a Hang Seng Tech index ETF, a Nasdaq 100 index ETF, a CSI 300 index ETF, and Kingdee. Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

A friend of mine in Shenzhen asked me yesterday how I invest in China. Bank of China’s Hong Kong listed shares had closed that afternoon at HKD 5.235. Its Shanghai shares closed at RMB 5.750, or HKD 6.684. I told him the current premium for holding the mainland listed version was 28 per cent over the Hong Kong equivalent.

“That cannot be right!” he said.

He knew of the CSI 300 mainland stock index. He also knew that Hong Kong had its own exchange. What he did not know is that a Chinese company can trade on both exchanges at two very different prices.

We ended up spending a long time on why the premium gap exists and why I chose to invest via Hong Kong instead of the mainland.

The price difference across two cities

Bank of China is 3.2 per cent of my income book and one of its largest single positions. The Shanghai shares are priced in RMB and owned almost entirely by people living on the mainland. The bank’s Hong Kong shares are priced in Hong Kong dollars and accessible to anyone with a brokerage account. The two share classes are called A- and H-shares.

Bank of China declared a dividend of RMB 0.2263 per share for 2025 and pays it to every shareholder. An investor in Shanghai pays 27.7 per cent more than I do for the same dividend, which is why my yield is 5.02 per cent and theirs is 3.94.

Given that I have a choice, I own the shares listed in Hong Kong.

With a gap that size, the obvious trade is buy the cheap one, short the expensive one, wait. I know, because I thought about doing exactly that in 2020. The gap has refused to close for twenty years, through crashes, reforms and a pandemic. Whatever holds it open is stronger than my bright idea.

Why there are two prices

I knew none of this when I bought my first Chinese stock in 2018. What confused me first was the availability of China ETFs: CSI 300, MSCI China, MSCI China A-Shares, MSCI Hong Kong, all claiming to be the same country. They are not, because China has two stock markets with two different histories.

Both cities’ broker associations were founded in 1891. Shanghai closed in 1949 and stayed shut until 1990; Hong Kong kept trading the whole time. When Shanghai finally reopened, its job was to raise money from mainland savers for state-owned companies.

Hong Kong was already a common-law market with its own currency, its own regulator and access to global capital, and from 1993 mainland companies could list there too, starting with Tsingtao Brewery. But mainland savers were not allowed to follow their companies abroad. That split is the whole story: one company, two pools of money that cannot mix, and thus two prices. The four ETFs on my broker's list were just the split showing up in my account.

The door Beijing built, and who gets through it

In 2014 Beijing opened Stock Connect between the two markets. Since then, a mainland investor has been able to buy Hong Kong listed shares through a mainland broker while I can use the same gateway to buy mainland listed shares. One would have expected this mechanism to have narrowed the premium gap, but it has not.

Mainland investors buying Hong Kong stock this way never transfer money out of the mainland; the trade settles at home in RMB, through the mainland clearing house. I have never used the gateway the other way myself as my orders go straight into the Hong Kong stock exchange. Unfortunately, not every mainland investor can place such orders.

Mainland investor: I want to buy the cheap Hong Kong shares too.

Stock Connect: Show me RMB 500,000 across your accounts, averaged over 20 trading days.

Mainland investor: I have RMB 80,000.

Stock Connect: Then you’re bidding in Shanghai.

That excludes most retail accounts, which make up most of the trading in Shanghai.

Due to these restrictions, a large pool of household savings is stuck bidding only for mainland listed shares. Bank of China’s H-shares, on the other hand, are priced by international investors weighing the bank against every other major banking stock.

Hang Seng maintains a premium index comparing the two markets. On 7 August it showed that 128 of the 155 eligible dual-listed pairs had their Hong Kong shares trading more than 20 per cent below the mainland ones, with another 16 between 10 and 20 per cent below. In this index, 100 means the two share prices are the same. It closed at 122.52, meaning mainland shares were about 22.5 per cent more expensive on average. Bank of China’s own pair was 127.7.

The index had fallen about 12 per cent over the previous year, which I have benefitted from as the gap has narrowed. AAStocks keeps a live table of every pair, which is the quickest way to see how far the gap stretches beyond the banks.

Who sets the Shanghai price, and how long they hold

The average Shanghai account holds a stock for 40 days; institutions hold for 109. I have held Bank of China for more than two years and kept adding on selloffs. Individuals do about 85 per cent of the trading there, so the A-share price is mostly set by people who will be gone before the next dividend arrives. I do not read that price as a verdict on the bank. I read it as a weather report. Hong Kong's last count put institutions at 53 per cent of turnover and retail at 20. The data is old, but I doubt it has changed much.

Then there’s the national team. The big one is Central Huijin, a state-owned entity that also happens to be Bank of China’s controlling shareholder. By mid-2025 it held RMB 1.28 trillion (~US$190 billion) of mainland funds, and it calls itself an equalisation fund. As far as I can tell, the national team only buys on the mainland.

A premium between two share classes isn’t unique to China. Rio Tinto has the same setup between its London and Sydney listings: Australian shareholders get a tax credit London holders can’t use, so the Sydney shares trade roughly 25 per cent higher. The difference is that in China, Beijing holds nearly every lever. It writes the rules, owns the bank, sponsors the index, is the largest buyer, and decides whether mainland savers are allowed to cross the border and close the gap themselves.

The ten per cent tax I never see

Every year the dividend lands in my brokerage account already 10 per cent light. I have never filed a mainland tax form in my life. The bank does the withholding for me, and says so in every dividend announcement, buried in a long sentence about individual income tax. So the 5.02 per cent gross arrives as roughly 4.5.

If I buy the A-shares through the northbound Stock Connect, 10 per cent comes off there too. Tax falls on both sides of the same dividend and leaves the 27.7 per cent gap standing. The same tax code is also one reason the gap stays open.

A mainland individual buying these same H-shares through the southbound Stock Connect has 20 per cent withheld, twice what I pay on the identical dividend, while holding the Shanghai line onshore for more than a year costs nothing. Beijing’s tax code is telling my friend to stay in Shanghai. He listens.

The scoreboard that does not count my shares

The index many call China’s S&P 500 is the CSI 300, but it holds mainland shares only. I hold a CSI 300 ETF myself in the growth sleeve, so yes, some of my own money is parked on the expensive side of the gap I just spent several paragraphs complaining about. The income book sits on the cheap side. Both get called China exposure.

The newer CSI A500, launched in September 2024, does not close the premium gap either, and the two big foreign index providers cannot agree on how much of the mainland market counts in the first place: MSCI weights A-shares at 20 per cent of their full size, FTSE Russell at 25.

Choosing an index is a second venue decision, and most investors make it without noticing. I wrote about ending up on the wrong side of it in I Own the Wrong Index, Not the Wrong Businesses. It is also why I built my own way to benchmark the portfolio instead of leaning on a single index.

The five questions I run before I buy a Chinese company

I settle the venue first by asking myself these questions:

1. Which exchange am I on?

2. Who is the marginal buyer?

3. What reaches me after withholding tax?

4. Which major index is the company part of?

5. Which regulator has jurisdiction over my claim?

Run on Bank of China, the answers are why I bought where I did. Hong Kong, so the price I pay is set by an institution, not by one of the accounts doing 85 per cent of Shanghai’s turnover. Ninety per cent of the dividend reaches me, on today’s price about 4.5 per cent after tax. The bank sits inside the Hang Seng and outside the CSI 300. And if anything ever goes wrong, my claim runs through the SFC and Hong Kong’s common-law courts, in a language I can read and a system I mostly understand. That last one matters more to me than it probably should. As a former CFO and twenty-five years of reading filings will do that.

That settles the venue and nothing else. The business was a separate judgement, and I made mine in 2023 and 2024: four state banks, bought in Hong Kong at three to 4.5 times earnings. They now pay me 6.8 to 7.4 per cent on what I paid; anyone buying today gets 5.02, because the price rose faster than the dividend. That is the trade working. The income sleeve of my China book returned 13.8 per cent in 2024 and 25.3 in 2025, for whatever two good years are worth.

The claim on the bank is the same in both cities. What differs is everything around it: a thinner set of buyers, no state bid under the price, and border rules Beijing can loosen or tighten. I am paid to hold the more exposed position, on a dividend set by a state payout mandate. I think I am paid more than those risks are worth. I cannot prove it. The market may have the price right, in which case there is nothing to collect here beyond the dividend itself. If the gap ever closes, that is an upside I never priced in.

I monitor the premium

As we were winding up for the night, my friend asked: “What are you watching next?”

My answer was short: “How far Beijing is willing to open the door, and how fast.”

Two changes would matter. The 20 per cent withheld from mainland individuals who buy the Hong Kong shares, and the RMB 500,000 threshold that decides who may use the southbound Stock Connect.

The number I track is the Hang Seng China AH Premium Index. It closed at 122.52 on 7 August, and the 52-week low is 113.56. My rule is below 110, held through two consecutive quarter-ends before I act on it. As far as I can tell the index has not printed below 110 since Stock Connect opened in 2014, so I may be waiting years. One print does not count. If it breaks and stays broken, the design has changed, and my reason for owning the Hong Kong line goes with it.

My friend knows about the 28 per cent now. He is still bidding in Shanghai.

If you liked this article on why one bank trades at two prices, please share it with a friend who is interested in investing in China. Word of mouth is how this publication grows.

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As of the date of publication, I hold positions in Bank of China, China Construction Bank, Agricultural Bank of China, China Merchants Bank, Alibaba, and CSI 300 ETF. Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

On 23 July, two ministries in Beijing published 22 pages setting out what China should build in renewable energy capacity between now and 2030. I own three companies the new plan affects. I decided to read it over lunch at my favourite dim sum restaurant on the 58th floor of the Renaissance Shenzhen Bay.

The largest of the three is Beijing Jingneng Clean Energy Company (Jingneng), a Hong Kong-listed, Beijing state-owned wind and solar operator. It is 2.3 per cent of my income book, fully sized, and pays me about 8 per cent a year on cost, for as long as it holds.

Its wind fleet was forced to stop generating 11.09 per cent of the time in 2025, against a national average of around 6 per cent, the worst curtailment rate of my three holdings. The plan does not fix that. What it does is add a cost to everything Jingneng builds next.

China is committing to less than half the new capacity of what it installed last year, and that is the number every journalist will quote. It is also the softest line in the document. The rule underneath it has never appeared in a Chinese renewable plan before.

What the Outline left out

The renewable energy plan sits under the 15th Five-Year Plan Outline, the document I aligned my portfolio against in March.

The Outline stated that the non-fossil share of energy production must rise. No output number was given. This sector focused plan is where the numbers appear. Two of the numbers are binding. The rest is direction of travel as I have outlined in the table below.

Three numbers matter to me: namely how much gets built, how hard each installed kilowatt has to work, and how much output the grid can count on when demand peaks.

The first is a floor. 2,800 gigawatts (2.8 billion kilowatts) of wind and solar by 2030, up from 1,840 at the end of 2025. Spread over five years, that is 192 gigawatts a year. China added 438 gigawatts in 2025, more in a single year than the United States has installed in total.

Judging by the previous plan, the floor is a minimum China expects to beat. The June 2022 renewable plan was beaten by around 18 per cent. I read it as permission to slow down rather than a decision to halve the build outright. Either way, the volume number is not what decides what my three companies earn. If they build more, each new centralised project, meaning a utility-scale station rather than rooftop solar, has to fund a reliability requirement the last one did not face.

Nobody in Beijing has lost interest in renewables. China promised the world 1,200 gigawatts of wind and solar by 2030 and passed it in 2025, five years early. What is scarce now is somewhere for the power to go.

In Q1 2026 the grid took only 91.4 per cent of the wind power China’s turbines produced, and 90.6 per cent of the solar. The rest was curtailed: generated, then turned away, with the operator absorbing the loss. Four provinces threw away more than a tenth of the solar power they generated last year. When the two ministries write that they want reasonable revenue and return per kilowatt-hour, they are describing a sector that has been building itself into a loss.

My view is that a higher capacity grid is the fix, but that sits mostly in the parent energy plan. The long-distance lines that carry power from the remote, windy north to the cities in the east go from 340 gigawatts of capacity today to at least 420 by 2030. Eighty gigawatts of new transmission capacity over the five years, against at least 370 gigawatts of new wind and solar going into the same northern provinces over the same period.

The second is how hard the fleet is expected to work, and it is what lets a smaller capacity build produce the clean electricity Beijing wants. Across China’s wind and solar fleet, a kilowatt of capacity runs the equivalent of about 1,250 hours flat out today. The plan’s own numbers imply about 1,430 by 2030. That is roughly 15 per cent more electricity from the same hardware.

The measure counts only the power the grid actually absorbs, so anything curtailed does nothing for it. Some of the gain will come from better hardware in more ideal locations, though most of it, I suspect, has to come from turning less power away, more transmission capacity where the lines can be built in time and storage everywhere else.

The third is different: not a target but a standard a new wind or solar farm has to meet, and it is the one that actually costs money.

The rule that costs money

By 2030, every new centralised wind or solar station is meant to guarantee that a tenth of its capacity will be available when the grid runs short of power, with 95 per cent certainty.

A 100 MW wind farm has to show 10 MW on the coldest January evening, when heating demand across northern China peaks, the sun has gone down, and the grid has nothing spare. Batteries built alongside the turbines count towards the guarantee.

A wind farm used to be judged on a whole year’s output. Wind does not blow to a timetable, so the only way to be certain of delivering on that one evening is to have stored some beforehand.

That is where the build cost goes up. A project that used to need turbines, a substation, and a grid connection now needs a battery and the forecasting to support it. None of it generates an extra kilowatt-hour. Beijing scrapped the old rule forcing developers to bolt storage onto every project in February last year, as wasteful. This brings it back, as a standard the operator has to hit, not the blanket quota it used to be.

The plan promises to establish, in an orderly way, a capacity payment: a mechanism that pays an operator simply for being available, whether or not it generates anything that day. It does not say when, or who pays.

The capacity compensation will arrive eventually. Beijing has paid for availability before. The question is when, because the build cost on new projects starts now, and the best argument against assuming soon sits in Jingneng's accounts. Beijing promised early wind and solar projects an above-market feed-in tariff, but fell years behind paying it. It was still clearing those arrears in 2025. I am not underwriting this position on the money arriving within two years, or three.

The plan does not say what happens to a developer who misses the standard. My read is that the grid connection is the choke point. A station that cannot show a tenth of its capacity at the winter peak will struggle to get connected.

What is holding up Jingneng’s 8 per cent

Jingneng’s wind fleet is mostly located in Inner Mongolia, and its gas and heat business supplies Beijing. In 2025 it produced about 17 per cent more wind power than the year before and still earned less: profit attributable to shareholders fell 9.16 per cent. The company has promised to pay out a rising share of profits as dividends, 42, 44, and 46 per cent across 2025 to 2027. A rising share of a falling number is not a rising dividend, and I live off these dividends.

Two one-off items held the 8 per cent up last year. Beijing paid back RMB 4,404 million (~US$610 million) of overdue subsidy, 2.96 times what it paid the year before. Roughly a quarter of the distribution was a fifteenth-anniversary special dividend. Neither is a reason to expect the same again.

Curtailment is why more output did not mean more profit. Jingneng’s rate was 11.09 per cent in 2025, down from 11.79 the year before. A ninth of what its turbines produced was thrown away. Transmission fixes that, and transmission is not in this plan.

The plan puts Jingneng in the right physical location because its fleet sits in the clusters the document names, Ulanqab, Xilingol, and the Chagannur export project. This is exactly where most of the new northern capacity is headed. That is also the problem. The capacity arrives before the transmission lines do, and none of the lines is dated before 2030.

At the 28 July half-year meeting, which is five days after the plan landed, the company chairman flagged a downward trend in operating indicators. He called the gas plants the ballast, and tied flexibility retrofits to capacity tariff policy. What is squeezing the payout today is older than the new reliability rule, which only applies to what Jingneng builds next: curtailment nobody has fixed, and a dividend still propped up by money Beijing owed the company years ago.

Stronger or weaker: impact on my three positions

My two other renewable energy positions are China Resources Power, which runs renewables and coal plants side by side, and Huaneng Power International, one of the five big state generators. The reliability standard applies only to what each of them builds next, not what they already run. New wind and solar have to buy their reliability, mostly in batteries, before they can connect. Coal already has it, and already gets paid for it. The rule adds nothing to what coal earns. What it does is make the alternative to coal more expensive, and confirm that the scarce element on the entire grid is reliable output at the winter peak.

Coal supplied 49.7 per cent of China's electricity in the first half of 2026. That is below half for the first time on record. Since January 2024, a coal plant has earned a payment for the electricity absorbed by the grid, and a second for availability. The NDRC set the standby payment at RMB 330 per kilowatt of capacity a year, with most provinces paying about 30 per cent of it across 2024 and 2025, and every province moving to at least half from this year. Carbon Brief estimates it to be 5 to 8 per cent of coal-plant revenue.

Huaneng is the largest coal owner of my three positions. It had 92 gigawatts of coal at the end of 2025, 59 per cent of a 156 gigawatt fleet.

China Resources Power (CRP) is exposed to both renewables and coal. Renewables were half of its 90 gigawatt attributable fleet at the end of 2025.

Both Huaneng and CRP already collect the grid stabilisation payment. Weighed against what each position pays me on cost, the impact across the three is uneven: net negative for Jingneng, which carries the new cost with nothing to offset it; neutral to positive for Huaneng, whose fleet is 59 per cent coal and already being paid for it; and mixed for CRP.

What would tell me I am wrong

Three things would.

The first is the money, and by itself it is not the issue. My case is that this standard is a cost with nothing behind it, so if Beijing puts a date, a payer, and a rate on the capacity payment for renewables, most of that case goes with it. Coal got all three within months, RMB 330 per kilowatt of capacity a year, and has been drawing on it since. Renewables have none of them yet. It only becomes a problem if that payment never comes.

Curtailment is the second, and the bigger of the three. It is the one I check month by month. Inner Mongolia’s wind utilisation rate, the flip side of curtailment, comes from the national new-energy consumption monitoring centre and is republished on the NEA site. Above 93 per cent for two quarters running and the lines are arriving faster than I assumed, which fixes Jingneng’s revenue without anyone having to pay for it. Below 88 per cent and it does not.

The payout is the third, and late August settles it. I have argued that 2025 leaned on the subsidy arrears and the anniversary special, and that neither comes back. If subsidy recovery holds anywhere near RMB 4,404 million, the dividend is better funded than I have given it credit for. If it falls back towards the 2024 run-rate while the payout ratio still climbs to 44 per cent, the 8 per cent is being paid out of money Beijing already owed.

There is no mechanical sell rule here. Beijing needs the power Jingneng delivers, and that buys the asset base patience. The payout is a separate question, and it is the one I live on.

The dim sum was worth the trip to the 58th floor, and I went down the lift still holding onto all three companies. The 22 pages do not change what Jingneng owns, or that Beijing needs the power it produces. The plan does change who pays to keep new power capacity dependable on the worst evening of the year, and for now that is the operator.

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Word of mouth is how this publication grows.

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As of the date of publication, I hold positions in Beijing Jingneng Clean Energy Company, China Resources Power, and Huaneng Power International. Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

I have spent most of my professional life around people with money, and the angriest I ever heard anyone get was over a number that was never theirs to chase.

An investor I knew once vented to me about their return, though the portfolio had not missed the benchmark they had signed off on. Someone at the golf club had made more in absolute terms, and that made the investor look bad.

I call it the Golf Course Benchmark. What that investor had lost sight of was the plan they had agreed with the people running their money. A strategic asset allocation is three things: what the portfolio has to pay out, how much the owner can afford to lose, and a mix of assets built to fit both. The benchmark is just how you measure that portfolio. Whoever runs the money should be judged against that, not against what pals at the golf club earned.

A golf buddy’s number has no standing in it. They may be running a different objective on a different time horizon, with a risk appetite for losing money the investor would never have accepted. Nobody at that club knew what the portfolio was for. By the end of the conversation, neither did the investor.

It's just me at my kitchen table in Hong Kong, running my own money. Nobody else's return means anything next to mine unless we are measured against the same thing, and we never are. There is nothing I can act on in a friend's number. Same with some writer posting returns on Substack. All it does is get in my head.

Recently I caught myself doing the same thing. SK Hynix and Samsung’s memory business rallied hard while I only participated indirectly with my Emerging Markets Asia ETF, and I wrote in Two Years, No Pay Cheque about how it stung. What I left out was why. I had stopped measuring my portfolio against the target I set myself, and started measuring it against a rally I watched from the sidelines. It lasted about a fortnight. I didn't change a thing in the portfolio.

So when readers ask what my return has been the answer is never a number. I can’t give you one without first saying what the portfolio is supposed to do. On its own the number tells you nothing.

What I can share is the two benchmarks I measure myself against, and how I have done against them. I’d have demanded that of any manager running my money, so I hold myself to the same standard. One of them looks good this year. The other does not.

The two jobs my money does, and the benchmark for each

The only benchmark that counts is the one I set out to beat, and it isn’t picked off a shelf. Instead, it mirrors how my money is invested. Someone holding nothing but large US companies might be measured against the S&P 500. My money has an income job and a growth job, so the benchmark follows the same split.

Those jobs are the two sleeves my book runs in, set out in full in Two Years, No Pay Cheque. The income sleeve pays for life. The growth sleeve is supposed to compound over time, with venture at its racier end. Cash sits outside both.

Income first. The sleeve holds investment-grade bonds at the safer end, high-yield bonds and dividend-paying equities at the riskier end. As a result, the benchmark is a blend of the same asset classes in roughly the same proportions. A bond index on its own would be the wrong benchmark.

I manage that sleeve to a cash yield of about 5 per cent, plus 3 per cent from capital appreciation over time. That 3 per cent is my own inflation estimate. Call it an 8 per cent objective, all in. I live on the 5 per cent, though not all of it turns up as cash by itself, which I’ll come to. The other 3 keeps the capital’s buying power intact while I spend the yield.

In 2025 I moved some European bond exposure into European banks, on the view that they were undervalued and that I’d be paid a decent yield while I waited for the gap to close. The only available liquid asset was an accumulating ETF, which reinvests the dividends inside the fund rather than paying them out. So I now hold a position inside the income sleeve that pays me no income. I bought it anyway, because what the banks were paying beat the bonds I sold to fund it and this was the only liquid way to own them. The 5 per cent is measured on the income the holdings generate, not on what turns up in my brokerage account. I look through to what the banks are paying into the fund, count that as income, and sell a slice if I need the cash.

My China book, the one I write about most, is a single regional slice of the income sleeve. Since I turned full-time investor, it returned 13.8 per cent in 2024 and 25.3 per cent in 2025, and it is down 1.7 per cent so far this year, a little over 40 per cent in total. The sleeve target is about 8 per cent a year, and that slice has cleared it. It sits at the more volatile end of the sleeve, though, so clearing the target there is the least I should expect, and it doesn’t tell me the sleeve as a whole is on track. Look at 2026 on its own and the price is slightly negative, while the coupons and dividends arrived every month regardless. I judge my income sleeve over a long-term horizon as well as on the cash it generates.

Growth is easier to describe. The benchmark is what I could have bought instead of doing any work: 85 per cent MSCI World, 15 per cent MSCI China. The dedicated China weight is there because MSCI World underweights China far more than I do, so the benchmark carries the same tilt the sleeve does. If I can’t beat it, I should buy it and spend my time on something else.

Neither benchmark means much without my book behind it, so here are both sleeves by region and asset class. Growth runs a little over 20 per cent China against the 15 per cent I benchmark it to, and Europe at 47 per cent of the income sleeve is where most of the bank yield sits.

So what did my portfolio return in 2026?

The income sleeve is ahead of its benchmark in 2026. Cash turned up when it was supposed to, including in the months when prices were falling. The European and Singapore income equities were the best performing assets while Chinese equities and EU and US bonds were a drag. Bond underperformance is not surprising as rates kept rising over fear of higher inflation due to the Middle East conflict. I find bonds boring, which is why I own them. They are the part of the sleeve I seldom have to form a fresh view on, and this year they were also the part that cost me the most.

Growth is slightly underperforming this year and is slightly behind the 85/15 blend. Europe and the US did reasonably well. The drag is mainly my China growth equities as I wrote about in I Own the Wrong Index, Not the Wrong Businesses. I keep holding those businesses because my investment thesis hasn’t broken. Unfortunately, my benchmark doesn’t care about that. Sitting through volatility is the admission price I wrote about in Volatility Is the Admission Price, Not the Risk, and this is what paying it looks like against my own scoreboard.

The cost of running a structured long-term portfolio runs both ways. The rule that has me sitting through an unloved index, such as Hang Seng in H1 2026, is the same rule that kept me out of the memory-chip rally, because I had not done the work on those names. It cost me the best run of the cycle, which is how I know it’s a real constraint and not something I wrote down to look disciplined.

Why I never move the benchmark to suit the year

My benchmark approach only works if I don’t keep changing it to feel good. Views on individual holdings change once in a while, and swapping one for another inside the portfolio is just ordinary rebalancing. The plan itself I look at about once a year, and so far it has never needed more than a tidy-up. What I don’t do is change the benchmark because I happen to be losing against it this quarter. That is the golf club metaphor again, except now I would be doing it to myself.

Above all of my plans sits one test. Does the portfolio stay ahead of inflation? The measure there is what my own life costs, not a published CPI print. If the portfolio I live off buys less each year, it is failing.

Marking my own homework is the obvious objection to all of this. It is a fair one. A benchmark I set myself and never checked would be worth nothing. So mine gets checked every year: did the cash turn up, and does the money still buy what it bought last year. That includes the bond leg limping along at single digits.

Those checks tell me whether I am hitting 8 per cent for the income sleeve. They tell me nothing about whether 8 per cent was the right number to pick. I picked it myself, before I started tracking my portfolio like I learned at the family office, with no record to justify it. All I can say is that I have never quietly moved it to make a year look better.

The importance of writing the plan down

A benchmark is worthless until I have written down what the portfolio is for. That sounds like a big formal exercise. It is one sentence: what the portfolio must deliver, and by when.

Mine says the portfolio has to produce 120 per cent of my annual budget in income alone. That is the rule the whole income sleeve rests on. Someone else’s line might be a retirement date, or paying for kids’ school fees. Whatever it says, it has to be written down somewhere. Without my own benchmark I would have no way of telling a good year from a bad or lucky one.

I wrote my initial strategic asset allocation down in Turin while transitioning out of my family office role. It took me four versions of the spreadsheet that month. The objective came first, and the benchmarks came with it: roughly 5 per cent cash yield plus about 3 per cent for inflation on the income sleeve, 85 per cent MSCI World and 15 per cent MSCI China on the growth sleeve. That was the family-office discipline applied to my own money from day one. I would not change it if I had to redo the exercise tomorrow. The plan hasn’t made me a single dollar by itself. All it did was make every year since measurable. The numbers in it are mine. Nobody else has my budget, my tax residency, or my sleep pattern.

So far it has held. The one time it cost me anything real was the memory rally, when it kept me out of the best run of the cycle. But hey, there is always a next big thing. No big stupidity to confess yet.

The harder test hasn’t come yet. If I come out the far side of a full boom and bust and missing that memory rally is still the worst thing this plan ever cost me, then it was never much of a constraint. Just a story I told myself.

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As of the date of publication, I hold positions in STOXX Europe 600 Banks ETF and MSCI EM Asia ETF. Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

In the spring of 2024, in a rented flat in Turin, Italy, I sat down to design the portfolio I would have to live off. I had invested for 25 years by then, but always with a salary underneath me. I was on my way out of a large global family office, and for the first time the only account on the line would be my own, with no pay cheque at the end of the month to soften a bad period, no committee to share the blame.

A portfolio you have to live off stops being a scoreboard and becomes the thing that has to pay the bills while it goes nowhere for months. The design took a month and four versions of a spreadsheet. Living inside it has been the work of the two years since. What those years have not brought is a bad one: I have never sat through a 60% drawdown on this book with no pay cheque coming in, and I don’t know how it holds. I’m not going to pretend otherwise.

Nobody sits through months of drawdown because they were born calm. They sit through it because the portfolio was built so that sitting still is the rational move rather than the brave one, and with no salary behind you that difference is the whole game. It comes down to what you own and how well you know it, how you get paid to hold it while nothing happens, and what you have trained yourself to feel when the screen is ugly. Lose any one and the other two eventually break. I sketched the bones of this in No Pain to Begin With. Here is the machine.

Holding power isn’t a personality trait you’re born with, like being tall. It’s manufactured, on purpose, before you need it.

Start from the goal, not the position

Most individuals build a portfolio from the position up: a name they like and a chart that looks ready. I build it from the goal down, and the order is most of the edge.

It starts with a number. Not what I would like my life to cost, but what it costs. Say the honest figure is US$10,000 a month, or US$120,000 a year. Everything downstream is sized off it, so it has to be real before anything else gets designed.

One rule turns that number into the objective: 120%. The portfolio has to produce not US$120,000 but US$144,000 a year, net, in income alone. The extra 20% is not decoration, even if padding your own income target by a fifth is exactly the sort of thing that gives former CFOs a reputation. It absorbs a dividend cut, a currency move, a year when one holding suspends its payout, without forcing me to sell anything to eat or pay rent. Income that only ever exactly matched the budget would put me straight back to selling at the wrong time in the first bad year, which is the single thing this whole design exists to prevent.

The foundation: strategic asset allocation

Serious family offices don't start from stocks. They start from a strategic asset allocation: the objective first, then asset classes, then geography, then sector, and only last the individual security. I know, I spent six years as CFO of one, and the discipline came with me when I left.

For me the top of that allocation is the split itself: an income sleeve, a growth sleeve, and a cash reserve, each sized off the 120% number before a single holding is chosen.

US$144,000 a year is a target, not a portfolio. Turning it into one takes a yield, and the yield is not mine to pick; the rate environment sets what is achievable for a given amount of risk, and it has never once asked what my budget is. Say that environment supports 5%, net of withholding tax, at a risk level I am willing to carry. US$144,000 divided by 5% is roughly US$2.88 million. That is the income sleeve: capital set aside for one job, producing this year’s living expenses on schedule, whatever the market is doing. Move the rate, the risk, or the budget, and the sleeve is rebalanced to match.

Everything not required to hit that objective goes into the growth sleeve, with venture inside it as its highest-risk, longest-horizon slice rather than a category of its own. The split is not a taste for diversification; it is a direct output of the income objective. A bigger budget or a lower achievable yield pushes more capital into income and leaves less for growth. A smaller budget or a higher yield does the reverse.

Cash sits outside both sleeves, two to three years of living expenses doing two jobs. It funds life directly, so neither sleeve is ever a forced seller, and it is dry powder for when the market gets cheap enough to move it in. It flexes: more when the market looks expensive and I want the sleeves carrying less risk, less when opportunity is cheap. More cash buys a racier sleeve. Less cash demands a duller one. There is no free version of that choice.

Position sizing runs by rules set before any name is chosen. In the income sleeve, no single stock exceeds 7% of the sleeve, and the minimum target once I’ve scaled in is 3%, small enough that nothing breaks the income machine if it cuts its dividend, large enough that it still matters. In the growth sleeve, no single name exceeds 5%. Venture is capped at 0.5% a position, and every venture position is sized for zero: I design it to be a total loss, so nothing about how it behaves can touch how I live.

Inside each sleeve the same order runs all the way down to the name.

The geography rung carries the most weight. It clears economies on a competitive-edge test that has nothing to do with which flag I prefer: human capital that is rising, innovation that shows up in measured productivity rather than graduate headcount, and a government judged on the policy it implements, not the reform it announces. The test earns its place by how much it rejects. A country loses on it when its workforce shrinks faster than rising productivity and urbanisation can offset, when its university system is hollowing out, or when its government reforms on paper every year and implements none of it, however cheap the assets screen.

The map I don't own

Right now the top-down order plays out unevenly, on purpose. I go all the way down to individual companies in the US, China, and Singapore, where the research runs deep enough to hold a single name through a bad year. Europe I hold at the sector or regional level, and part of my emerging-market Asia exposure sits in region-level funds, because I have a view on where the profit pools sit but not yet the company-level edge to back one name over a fund.

Large parts of the world map, the Middle East, South America, Canada, Japan, I hold nothing in at all. There’s plenty there. I just haven’t done the work. That discipline has a bill: somewhere in the markets I’ve written off, real money is being made in names I’ll never own, and the line between focus and blindness is one I keep having to re-earn. How far down I go on any name tracks the research behind it. Where I have not done that work, I own the index or I own nothing.

That discipline cuts both ways. SK Hynix and Samsung’s HBM business rallied hard while I held nothing. I watched it. I could see why it was working. I still didn’t buy, because I hadn’t done the work, and the rule that keeps bad analysis out of the portfolio keeps out the good stories I haven’t verified too. That one stings more than a loss.

If I can’t say which part of the value chain keeps the profit, I don’t have a thesis. I have a position, and a story I tell myself about it.

One rule binds the whole foundation, income and growth alike: no leverage.

Leverage is supposed to buy holding power, and it does the opposite. Borrow against the book and the timeline stops being only mine; it becomes the broker’s too. When the position falls far enough the margin call comes, always at the worst moment because that is when the collateral is thinnest, and a paper loss I could have sat through becomes a sale I have no say in. That is the trouble with borrowed staying power: it belongs to whoever lent it, and they can take it back on the day I most need to sit still.

Income sleeve

The illustrative US$2.88 million figure sizes the sleeve. It says nothing about what sits inside it.

I build it as a spectrum: investment-grade bonds at the safe end, high-yield bonds and income equities at the riskier end, with bond and income funds filling the parts where I don’t have a single-name edge. In practice that means positions I have already written up in full, a few examples rather than the whole sleeve: Chinese state banks held as synthetic renminbi bonds, bought for a politically mandated coupon rather than capital gains; three Chinese state telcos paying me roughly 6% a year while the state’s AI-infrastructure build matures; European Banks ETF and Singapore REITs in the same band. The mix is whatever clears the net yield target at the least risk I can get away with, and it moves as prices and rates shift.

I judge this sleeve by whether the cheques arrive. A quoted value that wobbles while the income holds is doing exactly what I built it to do.

One layer sits on top of the sleeve, and it is not a second bet. I hold a fair value range for every name I’ve done the work on. As a position approaches the top of its range I trim it or sell calls; as it approaches the bottom I sell puts, or buy more if I still have allocation budget for the name. The options overlay monetises homework already done: it pays me to wait at prices I’ve settled on in advance.

Growth sleeve

Once the income sleeve is funded and the cash reserve is set, everything left is growth, and it is free: free to take real risk, sit through a multi-year drawdown, or do nothing at all. Daily life is already paid for out of a different pocket. That freedom is the entire edge I have over professional money managers. The sleeve can afford to be volatile precisely because it is not being asked to feed or house me. Venture, its highest-risk corner, is sized the same way, as capital I don't need back on any particular timeline.

Inside it the same asset-class logic holds: single names where my research runs deep, index funds where it does not. So the sleeve holds Chinese EV makers on a still-unproven overseas-margin thesis and US enterprise-software names such as ServiceNow and Salesforce, bought during the SaaS sell-off, alongside broad index exposure such as Nasdaq and EuroStoxx 600 trackers where I don’t claim a single-name edge.

The no-leverage rule protects growth most of all. Everything here I own outright, which is what lets a thesis be wrong for as long as it needs to be before it comes right.

The human part you cannot design away

Structure solves the first half of the problem and doesn’t touch the second. You can engineer out leverage and forced selling. You cannot engineer out being human, and with no salary behind you the human part gets louder, not quieter. When the screen has been red for a fourth month and no pay cheque arrives to remind you that life goes on regardless, the urge to do something, anything, is real and physical. The telcos were off sharply earlier this year. I didn’t sell. I also didn’t add, because I was already at my position limit for the name, and adding would have meant overweighting it past a rule I’d set for myself, not chasing a better price. A few days later the stock rebounded off the lows, and what I felt watching that wasn’t relief at having followed my own rule. It was regret, specific and immediate, for the money I’d just watched walk past me. The rule had already made the decision.

If daily life is funded, a falling portfolio is a lower quote, not a threat to next month. If there is no leverage, no downtick can force my hand. That is what turns "just hold through it" from a slogan into something an ordinary person can do: the reasons to sell are already gone, so what's left is only the feeling, and a feeling I'm not obliged to obey is manageable.

The year I haven’t lived yet

This design has met ordinary drawdowns, not a severe one. I have never sat through a 60% peak-to-trough decline on it with no salary, watching two to three years of cash reserve thin against a fall that won’t end. The arithmetic says that fear overstates the danger. A 60% fall is a fall in the quoted value of the sleeve, not in the cash it pays: a coupon or a dividend is an amount set by the issuer, not a percentage of today’s screen price, so a sleeve built to throw off US$144,000 keeps throwing it off whether the market values it at US$2.88 million or at US$1.15 million. That US$144,000 is 120% of a US$120,000 budget by design, so the first US$24,000 of dividend cuts lands on the 20% buffer, not on my life. Behind it sits two to three years of cash, US$240,000 to US$360,000 against that same budget, which funds everything outright even if the sleeve stopped paying altogether for that long. A 60% drop doesn’t by itself stop the cheques.

The case I haven’t lived is the one where the drawdown and a wave of dividend cuts arrive together, and the reserve counts down month by month against an income sleeve that has stopped doing its job. I believe all three parts absorb exactly that, but a design that has never met its worst case is still a theory, and holding power without a salary or a risk committee can just be stubbornness with better branding.

I built a portfolio to live off, in a rented flat in Turin, for a year exactly like the one I haven’t lived through yet. The holding power came from the design, and a design only proves itself by being tested. Whether mine survives the worst year of my life, I don’t know, and I won’t pretend to. When it is finally tested I’ll write that up too, whichever way it goes. That is the one thing I can’t research my way out of.

Building the two sleeves is one half of the work. Knowing whether each one is doing the job it was sized for is the other, and the benchmark everyone quotes at dinner doesn't answer it. I wrote that part up separately:

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As of the date of publication, I hold positions in Geely, BYD, ServiceNow, Salesforce, Nasdaq 100 ETF, STOXX Europe 600 ETF, Bank of China, China Construction Bank, Agricultural Bank of China, China Merchants Bank, China Mobile, China Telecom, China Unicom, and STOXX Europe 600 Banks ETF. Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip

Walking home from dinner in Shenzhen earlier this week, I stopped in front of a Zeekr 007GT parked at the kerb outside Coastal City. White, with “007GT” painted down the door in letters you could read from across the road. It is the sort of car Chinese manufacturers spent a decade being told they could not build, now sold under a brand designed to travel. Standing there, I felt the specific unease of someone who owns the company and cannot tell whether the volume is profit, or just the same car travelling farther without earning any more for it.

So I opened Zeekr’s European configurator on my phone. The same shooting brake, sold as the 7GT in Europe, starts at about €44,000, against a little under RMB 200,000 here: roughly double once converted. VAT, tariffs, freight, richer specification and dealer margin all sit inside that gap before any of it reaches Zeekr. The number my position turns on was parked in front of me and still unverifiable in either direction.

I own BYD and Geely in my growth sleeve, Geely the larger of the two. Together they are about 3.4 per cent of the sleeve, roughly 2.2 per cent Geely and 1.2 per cent BYD. I bought BYD on the possibility that Chinese scale could become a globally durable, locally profitable business: the electric Toyota thesis. Geely now has to meet the same standard.

H1 2026 confirmed that both companies are exporting their way out of a weaker domestic market. It did not confirm that the economics have followed them abroad. Foreign profitability is the first hard test.

Relocated volume, unproven economics

BYD sold 1,808,511 new-energy vehicles in H1 2026 (NEV: battery-electric plus plug-in hybrid), down 15.72 per cent. Overseas NEV sales rose 70.65 per cent to 792,256, now 43.81 per cent of the total, while domestic volume fell 39.57 per cent. BYD is not simply shrinking. It is relocating its demand.

Geely sold 1,422,958 vehicles, barely up on the year, with domestic volume down about 22.6 per cent and exports carrying the difference. Its total passenger-vehicle exports were about 474,228, but the figure comparable with BYD is NEV-only exports of 275,417. I use 275,417. The larger number makes Geely’s electric export position look stronger than it is, which is exactly the flattering error I am trying not to underwrite.

The domestic fall is not a clean read on competitive failure. China’s NEV purchase-tax break was halved from the start of 2026, pulling demand into late 2025, while the national trade-in scheme was renewed rather than withdrawn. BYD management has also pointed to a second-generation Blade Battery production-line transition as a bottleneck. But a 39.57 per cent drop is too large to file under calendar effects, and a production bottleneck is a problem to fix, not a permanent excuse. The home market is genuinely harder. Exports are now doing the work domestic demand used to do.

A visible price gap, an unreported margin

Geely’s export mix climbed from 13 to 29 per cent as group gross margin rose to 17.5 per cent, with revenue up 15 per cent on 1 per cent more volume. BYD’s December 2025 European pricing ran roughly twice its Chinese level, about US$45,083 against US$23,929. Both companies have the vertical integration, product range and distribution spend to make a higher foreign realisation plausible.

A European sticker price does not tell me what tariffs, freight, certification, richer specification, VAT and dealer economics leave for shareholders. Neither company reports an overseas auto gross margin. The strongest number I have, a Dolphin analyst estimate relayed via Longbridge in April 2026, put Geely's export margins about ten points above domestic. It is not a filing.

The BYD thesis set a higher bar than a foreign margin premium. Local durability requires factories, suppliers, after-sales capability and enough political staying power to earn through a cycle. Hungary will be the first serious test, and it is already behind schedule: series production has slipped from an original Q2 2026 target to Q4, per Reuters, citing BYD EVP Stella Li.

I set my expectation for Hungary on BYD’s original guidance without discounting it for the thing industrial builds in new countries tend to do, which is run late. That is on me. It is the same discount I owe Geely’s export-margin estimate before I let myself believe it.

A disclosed overseas margin above the domestic business would be encouraging, but locally produced cars still have to earn through European labour, logistics and tariff costs. That is where the Toyota comparison becomes useful rather than flattering. Toyota’s durability came from learning to build, source and sell locally in the markets where it wanted to last.

Why this is a portfolio problem, not an industry one

Everyone already knows Chinese competition is rising. The sharper point is that I own both sides of the same unreported claim. If overseas margins compress, I do not hold two diversified outcomes. I have made the same mistake twice through two companies.

The visible evidence is becoming less comforting. On China Passenger Car Association (CPCA) figures, BYD took 34.5 per cent of China's national NEV exports in H1 2026; Chery, Geely and Tesla's China operation added another 35.6 per cent between them. Geely's own NEV exports rose 601.4 per cent off a small base. This is not two companies expanding into empty markets; it is a domestic price war acquiring passports. A premium is harder to defend when everyone crowds the same foreign forecourts.

Trade policy can take the margin from the other side. The European regime remains unsettled, whether it lands on countervailing duties or a negotiated minimum price, and any thesis built on today’s price gap has to survive it. Volkswagen’s response shows how real that pressure is: in July it confirmed cutting its model line-up by up to half and vehicle options by up to three-quarters, explicitly to compete with Chinese carmakers, while lobbying for tougher tariffs. It is cutting costs and demanding protection because it has decided to survive. That fight is the other side of the margin gap I am underwriting.

Even the volume may be running ahead of real demand. The IEA found 2025 Chinese EV exports ran more than 25 per cent ahead of overseas retail sales. Some of those cars are sitting in channels, not driveways, and there is no H1 2026 clearance data yet to show that the gap has closed.

The two roads, kept small

BYD and Geely are not running the same playbook. Geely is using the overseas footholds of Zeekr and Lynk & Co rather than starting with a single-brand network. BYD is pairing its own dealer network with local production, already running in Thailand and Brazil and now reaching Europe with Hungary.

Geely’s route is cheaper in capital. BYD’s is more capital-intensive, and if its factories and suppliers eventually earn through a cycle, the advantage is harder to replicate. I cannot yet show which route produces better economics, so I treat the difference as a question inside the position rather than a separate bet.

What would change my mind

I hold three outcomes, weighted.

1. Export margin holds, 30 per cent. Segment disclosure confirms real foreign gross profit; localisation deepens and the premium survives.

2. Volume rises, margin compresses, 55 per cent. My modal case. Chinese capacity follows demand abroad, trade friction takes a slice of the price gap, and neither company discloses the margin needed to prove the premium survives. Geely may still reach foreign volume with less capital; BYD may earn more if control of production and distribution outweighs tariff and localisation costs. I cannot yet show which.

3. Domestic weakness overwhelms the offset, 15 per cent. The home decline outruns exports even after the tax pull-forward fades.

These weights record what would move me. They are not a precise forecast.

August is the first test, not the verdict

Management has indicated that overseas profitability is structurally stronger, but I cannot verify its magnitude or durability from segment disclosure.

The next real evidence arrives with the interim results, expected in late August. I want an overseas segment breakout from BYD or export profitability disclosure from Geely. Neither has committed to provide one. If both stay silent, I will not read that as evidence of weak economics. I will keep the positions capped because I do not add to an unproven leg.

My failure condition is not one low overseas margin. It is both companies shipping more cars and committing more capital abroad while becoming less able to earn through the markets they are trying to own. A margin below the domestic business, or overseas prices falling materially as volume climbs, would be part of that evidence. I would rather hold a position with one honestly unproven leg than sell on a headline I already know is the wrong scoreboard.

I own BYD and Geely for the Toyota thesis: that a Chinese carmaker can become a durable global business rather than a temporary exporter of surplus volume. The reported margin is the first instrument for testing whether foreign volume is earning its way towards that business.

If it is not, I will be holding two positions that grew for the same wrong reason. That is the cost of having made the same bet twice.

As of the date of publication, I hold positions in BYD Company (HKEX: 1211) and Geely Automobile Holdings (HKEX: 0175). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

I am in Denmark this week, so there is no new Cohong Lane deep dive today.

Instead, with our first full quarter behind us, here is a look back at what actually landed since I launched in mid-April.

A lot of you have joined recently, so this doubles as a place to start. And if you have been here a while, a mid-year list is a fair chance to catch the one or two you meant to read and never got round to.

The short version first. Cohong Lane is where I invest my own capital in public. Real money, a deliberate China tilt, currently about a fifth of the portfolio, primary work rather than market shorthand, and my mistakes on the record alongside everything else. I am not running a model portfolio or a signal service. I am thinking out loud about how a former CFO tries to compound his own savings without an institution behind him.

Here they are, roughly in the order you ranked them.

Top of the list, and the piece most of you have taken to. It lays out the operating system behind the whole portfolio: two core buckets, a fair-value compass, and the discipline to buy when nobody else wants to.

Next, the most-liked piece of the quarter. Why I hold 4 state lenders for a politically mandated coupon rather than capital gains, and the single signal that would make me sell out.

Then the method piece, and one of the most shared. How I trace a Five-Year Plan mandate down to the handful of companies that actually get paid once the policy lands.

Going by your comments, this next one drew the most discussion: the pace that forces Chinese companies to ship or die, and why I pay to train in that gym.

There was also the week I left the desk and got on a train to see one of these bets on the ground. The trip added what the filings could not.

You restacked this one more than any other. It is where I try to separate the noise you simply have to tolerate from the loss you actually need to fear.

And if you have just arrived and want the why behind all of it: what made me leave a family-office CFO seat to invest my own capital in public, and where the odd little name comes from.

That is the first quarter in the life of Cohong Lane. Whichever one you open, you will have a fair sense of how I think by the end of it.

Back next Saturday with something new. Until then, enjoy the weekend.

Philip

Cohong Lane is a periodical publication made generally available to the public. Nothing here is a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

On 26 June I ran the half-year numbers. Five of the seven indices I follow were green; the two that were red were both in Hong Kong, where I hold individual businesses, not just a fund. My own capital, marked down while the rest of the screen looked cheerful. I did not close the laptop.

Here is the scoreboard, year to date through 26 June.

A word on proportion first. My entire China exposure, including the cash I hold against it, is about 19% of the portfolio, concentrated enough to matter and contained enough to stress-test honestly. The rest sits in the United States, Europe, and across Asia, inside the same income, growth, and venture structure I use everywhere. China is where I do my deepest work, because it rewards it.

Am I being repriced for the businesses I actually own, or dragged by the vehicle they trade inside? Hong Kong’s underperformance is not one drawdown to wait out. It is a sorting problem: which of my Hong Kong holdings are genuinely impaired, and which are sound businesses caught in an unloved index.

I sit on both sides of that line. Hang Seng Tech is a growth position, so a 22% fall is a 22% drawdown, and that was the bargain when I bought it. The banks, utilities, telecoms and insurer are different: those I own one by one. A fund is a basket: a rotten apple inside it is not mine to act on, and I accepted that going in. My own book is a stock-picker’s basket, where a rotten apple is mine to find and mine to cut. So a fall in the fund is the drawdown, full stop; a fall in my businesses is only a mark on what someone will pay today, and the work is deciding, name by name, whether the mark is right.

The easy read is that China has rolled over. That is too simple. Last year the Hang Seng returned almost 28% and Hang Seng Tech 23%. This year both are in reverse, while across the border the STAR 50 and ChiNext indices have run up by more than a quarter over the same months. One country, three completely different tapes. The companies I hold were telling me otherwise.

Retail sales: the obvious read, and the incomplete one

The Chinese consumer is soft and property is still broken. Retail sales fell 0.6% in May from a year earlier, the first annual decline since late 2022; car sales dropped 16% and property investment over the first five months fell another 16%. If you want to sell the idea that China is uninvestable, Hong Kong is the most liquid place to do it.

But uninvestable is too large a word for the evidence. Industrial output still rose around 4.5% in May, and exports grew by double digits over the first four months of the year. The economy is not uniformly weak. It is split: genuinely soft in domestic consumption, sturdy in manufacturing and technology. If the problem were simply a weak China, the mainland boards would not be among the strongest in the world this year. Something more specific is happening inside the Hong Kong vehicle.

My Hong Kong exposure is a bet on particular businesses, not on a retail-sales print: state banks earning and paying out a spread, utilities and telecoms on regulated or near-monopoly cashflows, an insurer rebuilding its model, a platform giant rebuilding its stack around an open-source AI model, carmakers taking European share at higher margins, and a few semiconductor and software names tied to industrial policy. Part of that book lives or dies on the consumer. Most does not. The index draws no such line. I have to.

The vehicle problem: Hang Seng Tech is not the AI trade

The global rally of 2026 has been an AI hardware and capex story, and the Hong Kong tech index is not built to capture it. The names leading the world this year, the chip designers, the server makers, the data-centre landlords, the power providers, are listed in New York, Taipei, or on the mainland, not in Hong Kong.

Standard Chartered’s own wealth research lays it out plainly: Hang Seng Tech is roughly half internet and platform companies, about 15% electric vehicles, and under a fifth upstream AI hardware and semiconductors. It leans on exactly the parts of Chinese tech the retail number hurts, and is thin in the build-out. The AI hardware cycle is real but largely onshore, which is why the STAR 50 and ChiNext have flown while Hang Seng Tech has sunk.

Hong Kong also printed a great deal of new paper. More than 110 listings raised something like HKD 280 billion last year, a more than threefold jump on the year before. That is a supply problem for the old internet complex, not proof that every new line on the exchange is broken.

And the index compiler knows it. On 8 June Hang Seng Tech took in its first two pure-play AI model makers, MiniMax and Zhipu (the company behind the GLM model), dropping Kingdee and Kingsoft to make room. Both listed in Hong Kong only in January and have since run several times over. The gauge built for the last cycle of Chinese tech is being rewired for this one: the index I am marked against in June is not the one I will face by December.

This is the trap, and the June reshuffle proves it. A single quote screen prices very different things as one, and even its own compiler is busy redrawing what counts as Hong Kong tech. I will not read a verdict on my holdings off it.

I should grant the obvious objection: the vehicle story is also a convenient one for someone who would rather not sell, blaming the index compiler instead of asking whether I own the wrong businesses. Fair. What keeps it honest is that each position carries its own kill conditions, written down before the screen turned red.

Three buckets for a drawdown

I have written before, in Volatility Is the Admission Price, Not the Risk, about the four questions I run in any sell-off: has management integrity changed, has the industry structure worsened for good, has regulation impaired the model, has the balance sheet become a real problem. But when a whole sleeve lags at once, I sort the names into three buckets first.

One: the business has changed and the thesis is weaker, which earns a hard look and perhaps a cut. Two: the business is fine and the category, not the company, is being liquidated. Three: the business is fine and now cheaper, where I would add if the underwriting holds. The honest constraint is that I am already fully allocated to every one of these names. Adding means over-allocating beyond the weight I set in calmer weather, a bar I clear only at an exceptional price. The vehicle is cheaper than it was. Not cheap enough yet. So I am not adding yet: price and evidence, not hesitation.

The contradiction, in two names

Take BYD, the sharpest contradiction I own. One metric I track is European registrations, and over the first four months of the year they more than doubled past 100,000 units, enough to overtake Tesla on the continent, and at higher margins than it fights for at home. The domestic price war is real and unfinished, so this is no clean bill of health. But on the metric that matters to my underwriting, export margins rather than the home price war, nothing has yet turned. BYD peaked at around HKD 113 in April and trades below HKD 73 today, tracking the sector down while its own sales climbed.

I can hold it without flinching because I wrote the kill conditions down in calmer weather. The case breaks if Europe shuts the door faster than the factories can localise, through tariffs or local-content rules, or if the price war reaches the export margins. Neither has happened. For now the operating metrics confirm the thesis even as the screen denies it: not proof, and a read that can change with the next print, but when what I track and the quote disagree this loudly, I side with the cars over the screen.

China Merchants Port Holdings makes the same point without the glamour. It is the sort of infrastructure sold indiscriminately whenever China is out of favour. Its first-quarter metrics ran the other way to its shares: revenue up roughly 5% year on year, container throughput up around 4%. Profit was the softer line, and I will not bury that, but for an asset I own over a multi-year horizon the test is whether it is still used and still earning, and rising volume and revenue say it is. One quarter's margin move does not change that. Second bucket: a working business inside an unloved vehicle, sold off with the category.

The rest of the book runs through the same test, more briefly. The platform and EV complex is where earnings pressure is genuinely real, consumption soft, the delivery and ride-hailing fight brutal, the ad recovery patchy, yet the platform giant is rebuilding its cloud around its open-source model, so the next few quarters may read badly while the multi-year case holds.

The banks, insurers, utilities and telecoms are a different animal: liquid, widely foreign-owned, among the first things sold in any China risk-off, which is why they get dragged down alongside Hang Seng Tech while sharing almost none of its fundamentals. The sell-off also lifts their yield. The four state banks I hold as bonds, not stocks sit below book at around 5.5% today, against the 6.8 to 7.4 per cent I earn on cost; the three state telcos I own for the income yield roughly 6% on their Hong Kong lines. Below book on that kind of yield is a bet on balance-sheet survival and dividend policy, not AI capex.

The AI-adjacent software and semiconductor names are the most volatile of the lot, because their thesis leans on a hardware cycle largely not listed here: they can be right about the trend and wrong about the route.

What would make me wrong

Four developments would move a name from out of favour to genuinely impaired: a stalled cloud and AI transformation at the platform giant, with margins compressing and no path back; BYD’s overseas expansion blocked by tariffs or local-content rules moving faster than its factories; a dividend cut at an income name from balance-sheet stress rather than a policy tweak; or a credit event travelling from property into the banks.

None of those has happened. What has happened is duller: the market found better stories to tell elsewhere, and for now it has gone to tell them.

The admission price this time

In Volatility Is the Admission Price, Not the Risk, the admission price was watching real money disappear while every instinct screamed at me to act. This time it is quieter and harder: watching an index I sit inside lag a world that has found a better story to tell. The discipline is to keep that price from rewriting the underwriting.

The real risk is not the drawdown but selling a good business because the wrong index was liquidated first. Sitting with that is harder than it sounds on the page. The screen refreshes every few seconds. The filings are months away. So I hold.

The port operator has already answered its question: volumes and revenue up, so it comes off the open list. The two still undecided are the platform giant’s cloud-margin trajectory and BYD’s first-half European registrations. Those will tell me whether I own the wrong business or merely the wrong index, and I have decided each answer in advance: confirmation at a price this cheap is where I over-allocate, a broken kill condition is where I cut, anything in between is hold. Until the filings land, that distinction is the only one that matters.

As of the date of publication, I hold positions in Alibaba Group Holding (HKEX: 9988), BYD Company Limited (HKEX: 1211), and China Merchants Port Holdings (HKEX: 144), as well as in the Hong Kong-listed banks, utilities, telecoms, insurers, and tech names referenced in the body. Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

The clause everyone skipped on the way to the headline

China’s draft mandatory standard for automated driving systems requires fault-tolerant perception, not a specific sensor, and that distinction changes how the rule hits my portfolio.

I read the primary text riding in a driverless Pony AI robotaxi on the way back from OCT Harbour in Shenzhen, the draft open on my iPad. Four of my holdings depend on it. I had spent the morning walking dealership to dealership, XPeng, Xiaomi, NIO, Hongqi, with a HeyTea somewhere in the middle as a concession to the June heat. By the time I got in the car, I needed to know whether what I had seen on those showroom floors matched what Beijing was actually mandating. Or whether the market had misread the rule, and I had sized for a catalyst that lands in 2027 rather than a mirage that evaporates in 2026. I had a thesis. I was about to find out whether Beijing had just broken it.

It is the Ministry of Industry and Information Technology’s (MIIT) draft national standard for automated driving systems, the mandatory GB standard replacing the voluntary GB/T 44721-2024. The comment window closed on 13 April 2026; the proposed effective date is 1 July 2027.

A word on the driving intelligence ladder the rest of this piece leans on. L2 still needs a human watching the road. L3 lets the car drive itself within defined conditions while a person stays ready to take back control. L4 removes the human inside a defined zone altogether. The draft standard is written for L3 and above, which is where the sensing and compute bill jumps.

The line doing the rounds is “China mandates lidar.” The text says no such thing.

What it actually says is narrower, and for my portfolio far more interesting. Clause B.3.1.5 requires fault tolerance in perception: if one sensor drops out mid-drive, a blinded camera, a lidar that stops returning, the system must still detect the road and bring the car to a safe stop. No single sensor failing may cause harm. Table B.1 sets a minimum forward detection range that climbs with speed, out to 130 metres at 120 km/h, paired with a braking capability of at least 5 m/s². The standard is technology-neutral from the first clause to the last. It never names a sensor. It mandates that the perception system keep working safely when one part of it fails, and it leaves the manufacturer to choose how.

The component reading turns the standard into a lottery ticket on one supplier. What it actually is runs duller and more durable: a performance-and-fault-tolerance bar gated by type approval, a slow, structural tailwind for the companies built to clear it. I own several of those companies. I bought them for other reasons, and this rule now tests every one.

How a safety clause turns into a cashflow

The mechanism is unglamorous, which is why it is mispriced. A car cannot be sold in China without clearing China Compulsory Certification (CCC) type approval. The new standard makes the safety case, and the documentation behind it, the thing you clear. A single-perception-fault tolerance bar, plus a minimal-risk-manoeuvre clause forcing an unaided lane change to a safe stop, is expensive to prove. They reward manufacturers with scale, capital, and regulatory standing, and they raise the sensing and compute content that has to sit on an L3 car to pass.

The standard does not put a number on that content uplift. That it raises content per L3 vehicle is a structural read, mine, built from the clauses, not a figure printed in the text. What I am sure of is the direction, and it reaches the suppliers before any single carmaker’s brand. Who captures it is the question the rest of this piece is really about.

Where each holding sits on the line

I did not buy any of these names for this standard. I bought them earlier, for their own reasons, and the rule is a test of whether those reasons still hold. Four of the six sit in my Ventures sleeve, two in Growth. I own the stack rather than a single badge for a simple reason: I cannot tell you which Chinese carmaker brand wins the autonomy war, and owning the suppliers means I do not have to.

Start with the Ventures sleeve.

Hesai is the global leader in automotive lidar, ranked first in ADAS main lidar at roughly 43 per cent share in 2025, and the first lidar maker to post a full-year profit on a GAAP basis. Its moat is scaled, cost-down, automotive-grade manufacturing with in-house chip design, turning out a unit roughly every 10 seconds, with its ATX sensor heading toward about US$150 in 2026. I own it as the picks-and-shovels supplier that gets paid by sensor content per car, whoever wins the showroom; it is the lidar position I added on the L3 certification path. The 2025 numbers are strong on their own terms: full-year net revenue of RMB3,027.6 million (~US$432.9 million), up 45.8 per cent; a first full-year GAAP net income of RMB435.9 million; and shipments of 1.62 million units, up 222.9 per cent.

Here is the nuance I refuse to gloss. That 2025 revenue is overwhelmingly an ADAS story at a blended selling price near US$260, down from about US$530 the year before as cheaper ADAS units crowded the mix. The L3 content thesis is forward. Hesai is the confirmed lidar supplier for Mercedes-Benz models enabling L3, announced on 19 May 2026. Separately, a week later, it secured a different win: an order exceeding 1 million units from a second, unnamed top European maker across more than 10 of that group’s China joint-venture models. Its multi-lidar design wins with Li Auto, Xiaomi, and Changan start production across 2026 and 2027. The company’s own guidance is 3 to 6 lidars per L3 vehicle, roughly US$500 to US$1,000 of content. That is Hesai’s guidance, not the regulation, and I hold it at arm’s length. I am not buying a 2025 revenue line. I am buying the design-win book that converts as those programmes reach start of production. What the book is worth turns on one number I cannot yet see: how much of the won volume ships at three-to-six-lidar L3 content rather than single-lidar ADAS. So I size for the wins already entering production, not the full book at full content, and I read the start-of-production dates as the conversion happens rather than waiting on a single 2027 print.

Horizon Robotics is the compute leg of the same thesis, one layer up the stack. It is China’s leading domestic ADAS compute and system-on-chip supplier, the Journey series, and the credible domestic alternative to NVIDIA, embedded across China’s top-10 carmakers with switching costs that bite mid-programme. That lock matters more in cars than in most of tech: once a chip is designed into a platform, swapping it mid-cycle is close to restarting the programme, so a design-win is not a single sale but a claim on that model’s revenue for its whole production life. Horizon is sitting on design-wins across more than 400 models, and that book is the thing I am actually buying.

Its share of the domestic-brand basic ADAS market is 47.7 per cent; its share of the broader mid-to-high-end intelligent-driving segment is a more modest 14.4 per cent, just behind Huawei at 15.2 per cent. FY2025 revenue was RMB3,758 million, up 57.7 per cent, with the high-end, NOA-capable hardware reaching 45 per cent of Journey volume, nearly 5 times its 2024 share. There is a second pull underneath all of this that I do not need to forecast to act on: export controls on the most advanced NVIDIA parts, and the wider push to localise compute inside China, move carmakers toward domestic suppliers whichever way the raw-performance race runs. That is a policy-made demand pull, not a call to buy, and it tilts the ground in Horizon’s favour. I own it for the part of the thesis that does not depend on which sensor wins: whether redundancy is met with more lidar or with more cameras and more compute, the compute content rises, and Horizon gets paid. The base is still overwhelmingly L2 and L2-plus, so the L3 uplift is optionality, not current revenue. And the company lost RMB10.469 billion in 2025 with research and development running at about 137 per cent of revenue, while one customer, its Volkswagen joint venture, was 37.6 per cent of revenue in the first half of 2024. I looked at that figure for a while. That is a deliberate land-grab burn, but it is still a burn, and I would be lying if I said the size of it sits easily with me. This is the nature of venture investing.

The car I was sitting in when I read the draft belongs to this position. Pony AI is my L4 position, and it sits on a different clause of the same rulebook. It runs robotaxi and robotruck fleets, its Gen-7 cars built with Toyota and GAC Toyota, and it has reached city-wide unit-economics breakeven in Guangzhou and Shenzhen. The reason I treat L4 as a commercial-fleet business and not a feature that arrives in the car you own is unit economics. A fleet operator can spread one remote safety operator across a growing number of vehicles. In Shenzhen, Pony has pushed that ratio to about one operator per 30 cars, with the wider fleet nearer one to 15 and heading the same way, while an individual owner can never amortise a safety net across anything but a single car. That is why city-wide breakeven on the Gen-7 fleet is the number that matters, and why L4 in a private car stays marketing rather than a business.

I own it as an asymmetric venture bet on L4 commercialisation against genuine failure risk, and it is also a Hesai lidar customer, so it sits downstream of the same sensing leg. The distinction that matters: Pony’s regulatory exposure runs through the L4 framework, Appendix C, not the L3 Appendix B redundancy clauses that drive the Hesai and Horizon content thesis. I will not conflate them. The 2025 revenue was US$90.0 million, up 20 per cent, split robotaxi US$16.6 million, up 128.6 per cent, robotruck US$40.6 million, effectively flat, and licensing US$32.8 million. Q1 2026 revenue jumped to US$34.3 million, up 145 per cent, and the fleet passed 1,700 by late May with a 3,500 target by year-end. It is pre-operating-profit, the one GAAP-positive quarter came from a mark-to-market gain rather than operations, and the robotruck line is going nowhere fast. I size it accordingly.

XPeng is the one I own partly as a hedge against my own thesis. It is a mass-market smart-EV maker, 429,445 deliveries in 2025, up 126 per cent, and its edge is in-house foundational driving models and its own Turing compute rather than sensor content. It has moved to a pure-vision stack and dropped lidar from its new models. Its G7 Ultra runs three Turing chips at about 2,200 TOPS with no lidar at all and is billed as the first L3-compute production car; it holds an L3 road-test permit in Guangzhou from December 2025. The tie-in is uncomfortable and useful, and the discomfort is specific: owning something that argues against my own thesis sits differently in the portfolio from anything else I hold. XPeng adds essentially zero lidar content. If the Chinese market ends up looking like XPeng, my lidar leg is narrower than I would like. Holding it keeps me honest about the counter-case, and it gives me exposure to the software-and-compute path if that is the one that wins.

Then the Growth sleeve.

BYD I have covered at length before, so one line here: God’s Eye reached more than 2.5 million cars by December 2025, but the mass-market tier carrying the bulk of that volume runs no lidar, only the premium Denza and Yangwang tiers do, and the first L3 test licence has not turned into a commercialised L3 product.

Geely is the multi-brand group, Geely, Galaxy, Lynk and Co, Zeekr, that sold 3.02 million vehicles in 2025, up 39 per cent, with NEV sales of 1.69 million, up 90 per cent. I own it for NEV volume and margin recovery, but on this thesis the load-bearing reason is the Zeekr hedge: a mass-market group with a real premium tier sitting on top. Its G-Pilot ladder runs from camera-led mass trims with no lidar up to the ZEEKR 9X, which carries multiple lidars and is described as designed for L3, though L3 there is a future capability, not a certified one. That ladder is why I hold it. If the redundancy bar lifts content at the top of the market, Geely captures it through Zeekr without betting the whole group on L3 arriving on schedule; if the mass market stays camera-led, the volume and margin story still pays. It is the carmaker position that does not depend on which way the sensor-mix question breaks.

Of the six, only Hesai has revenue mechanically tied to autonomy sensor content today, and even Hesai does not break that revenue out by autonomy level. Horizon is the next most exposed, through compute, but mostly at L2-plus. The carmakers are L2-plus volume stories with L3 still aspirational, and Pony is L4. So the L3-content thesis is forward and supplier-side, not a 2025 revenue line.

The risks that matter, and holding through them

That is the base case. Here is what collapses it. The strongest objection to my own thesis is sitting in my own book. The standard is technology-neutral, which means redundancy can be met with cameras, radar, and more compute rather than more lidar. XPeng’s G7 Ultra clears its own L3-compute bar with no lidar at all. The mass market is going the same way: BYD’s mass tier and Geely’s entry trims are camera-led. The data is genuinely split. Aggregate lidar adoption is still rising, around 3.21 million passenger-vehicle installs in China in 2025, up about 110 per cent, with penetration near 18.5 per cent by December, and the premium L3-aspirant tier is stacking multiple lidars. But below roughly RMB200,000 the volume is going camera-led, and falling lidar prices, an L2 unit near US$200 now, cut both ways: they widen the market and they cap the per-car content story at the bottom.

My read is hybrid tiering, not a single winner. Hesai’s lidar leg is validated where it matters commercially, the high-value L3 programmes and the European wins, and capped in breadth by a camera-led mass market. Horizon is the leg that does not depend on which way the sensor mix breaks, though that is not the same as saying its own balance sheet cannot break.

Then timing. The standard is still a draft. The comment window closed on 13 April 2026 and the final text has not been published, so I am treating that April close as the live fact. If the effective date slips past mid-2027 or the redundancy language is watered down, the catalyst dilutes. Since the supplier revenue is already weighted to 2026 and 2027, I am underwriting a wait in any case.

This is where the psychology does the real work, and it is the part I care most about. Four of these are Ventures-sleeve positions, sized at entry so that I can hold them through exactly this kind of uncertainty without ever being forced to act. The catalyst I am waiting on prints in 2027, not this quarter. The temptation with a regulatory thesis is to trade every headline: the draft, the comment close, the next earnings call, the next robotaxi incident. I am deliberately not doing that. I sized these as venture bets precisely so that a slipped date, a soft quarter, or a competitor's bad week, like the temporary regulatory pause that followed a rival robotaxi fleet stalling on 31 March 2026, does not put me in the one position I never want to be in: selling something good at the wrong time because the balance sheet made me. I have been there once, and the balance sheet had nothing to do with it. I owned the position on borrowed conviction, never made the thesis my own, and when it wobbled my nerves sold it for me. The worst feeling in investing is not the money. It is knowing I sold the right thing for the wrong reason, and that the reason was me. Holding power is something I build on purpose, and it runs on conviction I own rather than borrow.

The signal I am actually counting

The rule tells me the bar went up. It does not tell me whether it went up in sensing or in compute. The number that settles it is the average lidar and compute content on the 2027 model-year cars actually approved under the final standard. If those approvals come in at or above the 3-to-6-lidar band, the sensing leg is confirmed and Hesai’s design-win book converts into revenue. If they cluster on camera-led stacks with one lidar or none, I retreat to the compliance-and-capital leg and lean harder on Horizon’s compute, which gets paid either way. That is the test, and it is falsifiable.

Beijing did not mandate lidar. It mandated that no single sensor failing may cause harm, which is a harder bar, and it is the one my suppliers are built to clear. The approval sheets for the 2027 cars will tell me how much lidar and compute the final standard actually forced onto them, and that is the number I will be counting.

As of the date of publication, I hold positions in Hesai (NASDAQ: HSAI), Horizon Robotics (HKEX: 9660), Pony AI (NASDAQ: PONY), XPeng (HKEX: 9868), BYD (HKEX: 1211) and Geely (HKEX: 0175). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

On Friday 6 March this year, I watched around a thousand people queue outside Tencent’s headquarters in Shenzhen. Schoolchildren, retirees, office workers; reports put the ages at eleven to seventy. They were waiting for Tencent engineers to install OpenClaw, an open-source AI agent, on their laptops, free of charge. It was mad. And the question it left me with was how fast Tencent would move now that the queue had formed.

The answer turned out to be four days: Tencent launched QClaw, its own agent built on the same open-source framework, installable in about three minutes. Eight days later QClaw was a mini-program inside WeChat. Within the month Tencent had a full agent suite on the market: QClaw for individuals, Lighthouse for developers, WorkBuddy for enterprises. By late April there was a global beta and a new flagship model.

I cannot name a Western platform company at Tencent’s scale that moves like that. The interesting question is why Chinese ones do.

What is China speed?

Every conversation about Chinese industry arrives, sooner or later, at the same two words: China speed. Almost nobody who says them stops to explain them. So let me.

The Tencent story is the consumer-software version: pavement queue to shipped product family in under seven weeks. The industrial version runs on the same clock, and cars are the clearest place to see it.

A carmaker in Munich or Detroit was built to produce variants of a single model for 7 to 10 years: enough time to stabilise manufacturing, refine a supply chain and amortise the tooling. A Chinese EV maker takes a new model from concept to production in as little as 18 months by industry accounts, and the Wall Street Journal reported in March 2024 that Chinese development timelines run roughly 30% faster than at legacy manufacturers overall. The compression comes from running a different process entirely: development stages in parallel rather than in sequence, virtual testing in place of slower mechanical cycles, smaller and faster suppliers in place of the established names, and a willingness to put a car on sale and improve it in public rather than perfect it in private.

China speed is not the same industrial system executed faster. It is a different operating system, one in which speed is the organising principle and everything else, supplier choice, testing philosophy, launch timing, even pricing, runs downstream of it. I have walked enough mainland dealerships to know the cadence is real. What took me longer to understand is that the cadence is the strategy. The strategy runs on people, and the people running this one have a name for what it costs them: 996.

What does 996 mean?

The number is a schedule: nine in the morning to nine at night, six days a week. Seventy-two hours, against the 40 in a European employment contract. In August 2021 China’s top court and labour ministry published model cases ruling the formal 996 schedule unlawful. The schedule survived the ruling; it just stopped appearing in contracts.

Since I came back to Hong Kong in 2025 I have not stood in a Shenzhen office at nine on a Saturday night counting lit desks. What I can report is my own calendar: I keep more than a 996 schedule myself, and in this part of the world that surprises nobody. The stories do the rest. Xiaomi’s EV engineers, by press accounts, ran what insiders called a 996-plus regime through the SU7 programme, and the AI teams at Alibaba and Tencent are racing agent products out the door on timelines that make the schedule self-enforcing. Nobody has to mandate the hours. The launch calendar does that.

When your competitor’s engineers iterate on Saturday, your five-day development plan is a competitive decision someone else has made for you. Multiply that across every function and every rival, and you get an industry whose clock simply runs faster than yours. That is the gym’s first piece of equipment: time itself, used more aggressively than anywhere else in the world.

What does fierce competition mean?

The word “competitive” gets used loosely about most markets. Here is what it means in China’s EV market in 2026, where the growth end of my China book trains.

First, capacity. Chinese battery production capacity reached roughly 2,500 GWh in 2024 against shipments of about 1,250 GWh, a two-to-one overhang that pushed utilisation toward 50%. A cyclical glut clears on its own. Capacity sustained at twice demand is structural, and it sits underneath every pricing decision in the sector.

Second, pricing through the product itself. When a new model generation arrives every 18 months instead of every 7 years, pricing no longer happens through list-price cuts a CFO can ration. It happens through the launch: each generation lands at a price the previous one cannot defend. That is why the price war does not pause when executives disavow price cuts. The product cadence is the price cut. BYD’s own interim report last August described “industry malpractices such as ‘one-price policy’ and ‘excessive marketing’” weighing on domestic profitability. That is the market leader describing the arena it is winning.

Third, the state had to legislate against losing money. In February 2026 the market regulator issued the Auto Industry Price Behavior Compliance Guide, which explicitly prohibits selling goods below cost.

The hunger behind all of this has a face. Yang Zhilin, founder of Moonshot AI: born 1992, top of his class in computer science at Tsinghua, a Carnegie Mellon PhD finished in under four years, co-author of the Transformer-XL paper, stints at Google Brain and Meta AI. He went home and founded Moonshot in March 2023, naming it for the Pink Floyd album. By November 2025 a company of a few hundred people had shipped K2 Thinking, an open-source model that beat GPT-5 and Claude Sonnet 4.5 on key reasoning and coding tests, on Moonshot's own published numbers. Silicon Valley did not laugh: Cursor was reported to have built its flagship product on Kimi's models, and Elon Musk praised it in public. I was not laughing either: the research desk behind Cohong Lane runs on Kimi Code. Then the cadence kicked in: Agent Swarm in February 2026, K2.5 and K2.6 in April, K2.7 Code on 12 June: four releases in the four months before this piece went out. Asked what he is building toward, Yang talks about marching toward "the endless, unknown snow-capped mountain".

I keep coming back to that sentence. The hunger is for the summit, and the founders in Beijing, Hangzhou, and Shenzhen believe the summit is reachable from where they stand. That is what I am underwriting against when I own anything in this arena: a generation of founders who do not believe in finished.

Why the toughest gym in the world produces global champions

A company that can survive and thrive inside that arena can survive and thrive anywhere in the world. Not automatically, and not unconditionally. The gym builds the muscle: cost discipline under permanent price war, product cadence nobody outside China has matched, manufacturing flexibility, software iteration at consumer-app speed. What the gym does not hand out is the right to compete abroad. That has to be earned separately, through correct integration: local production, local suppliers, local service networks, political acceptability, and economics that survive tariffs.

Strength travels. Membership does not.

In April I re-tested the reason I own BYD in Can BYD Still Become the Future Toyota I Bought?: not a Chinese EV winner, but a globally localised, cycle-resilient, structurally profitable auto-industrial platform at Toyota scale. That sentence is a five-test scorecard, and I wrote it for BYD. The chairman has now named the destination out loud: at BYD’s annual general meeting in Shenzhen on 9 June, with the Hong Kong shares down by a third over the past year, Wang Chuanfu told shareholders that BYD “will truly become the No. 1 automaker globally in terms of scale in five years”. Scale is the one test a chairman can promise from a stage; the other four are why I keep the scorecard. From this piece onward I run it for Geely as well, because the logic does not care which badge is on the bonnet, only whether the gym graduate can belong abroad.

The two are taking different routes up the same scorecard. BYD is building the foreign base itself: trial production at Szeged in Hungary from January 2026, Brazil operational, Turkey scheduled by end-2026, its own roll-on roll-off vessels carrying the cars in between. Geely leans on a foreign industrial base it already owns through Volvo, plus a home machine that held gross margin flat at 16.61% while NEV sales jumped 90% in FY2025, per its March results presentation. Self-built versus acquired: the gym does not care, but the scorecard does, because each route fails differently.

BYD does not file margins by geography, but Dolphin Research’s March 2026 analysis estimates roughly 17.2% gross margin at home against 28.1% overseas in H2 2025, with gross profit per vehicle of about RMB 22,000 domestically and RMB 52,000 abroad. Analyst inference, not filed fact, and I treat it as such. But it rhymes with what the filings verify: overseas revenue grew to 38.65% of BYD’s total in FY2025 while the group margin compressed.

The margin shows up where the competition is not Chinese.

So the question I keep putting to myself, holding both names: if BYD and Geely can survive and thrive in the toughest EV gym in the world, who exactly beats them outside it? The honest answer is nobody on product or cost. What beats them is the part the gym never trained: the markets they fail to integrate into, and the tariffs they fail to localise around. And there is a harder version of that question I owe you: localisation changes the cost base itself. A car built in Szeged is built on Hungarian wages, European suppliers, and none of the financing habits the home arena permits. Whether the trained discipline survives that translation is not something I can assert from my Hong Kong desk. It is exactly what the overseas margin line will measure, and why I will keep reading it.

The membership fee

None of this is free. I own these companies, so I study the bill.

BYD’s 2025 annual report, filed in Hong Kong on 27 March 2026, carries the two numbers that price the gym. Gross margin fell from approximately 19.44% to approximately 17.74%. Operating cash inflow has fallen two years running: roughly RMB 169.7 billion in FY2023, RMB 133.5 billion in FY2024, RMB 59.1 billion in FY2025. Two-thirds of the operating cash engine gone in two years, while revenue kept growing. I read that line at CAPARESH, an Italian restaurant in Shenzhen Bay’s MixC I keep going back to, an iced Americano going down rather more easily than the cash flow statement. It is the line that would have alarmed me, had I not gone looking for the mechanism.

There are two causes compounding, and most coverage stops at the first. The price war is in the number, plainly. But so is a float unwind: since 2018 BYD had paid suppliers through Dilian, its in-house promissory note platform, on terms that, by Bloomberg’s count, averaged 275 days in 2023. When the new payment regulation took effect on 1 June 2025 and BYD joined 16 other automakers in pledging 60-day supplier terms, the structural float that had quietly financed years of expansion reversed all at once. Cash that was always going to leave left simultaneously. And it is not coming back: the float was a working-capital subsidy, and the subsidy has been withdrawn for good. The FY2023 cash baseline therefore belongs to a financing regime that no longer exists.

The second cause sits on the capex line. None of it reads as distress. It reads as a company investing through the price war rather than harvesting from it: Hungary, Brazil, Thailand, intelligent driving, flash charging, and now an announced entry into humanoid robotics, which Stella Li framed in a June 2026 interview with Yicai as a natural extension of the company’s manufacturing and software base. The strongest member pays the highest fee, and keeps adding equipment. The drop is not comforting. It is legible. Those are different things, and the difference is where my sizing lives.

The other names I own in this arena train in the same gym at different weights. In the growth sleeve, Geely’s flat margin through a violent mix shift is the placement test passed, and XPeng repaired its vehicle margin from 5.5% in Q1 2024 to 13.0% in Q4 2025 before easing back into a loss in Q1 2026: real repair, volume-dependent. In the venture sleeve, the fee is existential rather than uncomfortable. Four frontier sets of accounts in one sitting is its own kind of reading: somewhere around the third I stopped asking who wins the technology and started asking who can afford to stay at the table. Horizon Robotics ships a 64.5% headline margin with an adjusted operating loss underneath it; Pony AI runs a 15.7% gross margin on a US$275 million operating loss; Innoscience works out to roughly 7.3%. Three of the four are still paying for their seat. Hesai is the exception: FY2025 results filed 24 March 2026 show a 41.8% gross margin and a first full-year GAAP net income of RMB 435.9 million on revenue up 45.8%. The frontier’s first graduation certificate. The sizing instruction across the sleeve is unchanged: size by margin durability, not by sales momentum.

The full margin and policy work, the scenario weights, the question of whether the state ends the price war, all of that now belongs to the scorecard piece I will publish after the H1 2026 results season, with this version dated so you can mark me wrong later.

Who wins the gym

I have sat across a dinner table from this thesis more than once. Someone, usually someone smart, usually someone who has never read a Chinese filing, says it with the confidence of a conclusion: the toughest arena on earth, whoever survives it wins everywhere. I believe most of it. This piece has been my attempt to show you the machinery behind the slogan: a development clock running 30% faster, a workforce norm that uses time as a weapon, capacity at twice demand, pricing fought through the launch cadence itself, and a public that queues on the pavement to install the next tool. Everyone trains. Nobody rests.

But the gym story is a share-and-survival story, and it skips the question that matters for my capital. The membership fee shows up on the margin line, even for the strongest member, and the prize is collected somewhere else: in Szeged, in Brazil, in the markets where the graduate either belongs or merely exports. The gym makes everyone fitter. The gross margins, not the sales charts, will tell me who actually won it.

As of the date of publication, I hold positions in BYD Company (HKEX: 1211), Geely Automobile Holdings (HKEX: 0175), XPeng (HKEX: 9868), Tencent Holdings (HKEX: 0700), Alibaba Group Holding (HKEX: 9988), Horizon Robotics (HKEX: 9660), Innoscience Technology (HKEX: 2577), Pony AI (NASDAQ: PONY), Hesai (NASDAQ: HSAI), and Meta (NASDAQ: META). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

If I take the lift to the 47th floor of my apartment building, I can see Qianhai across the border. Beijing has built a copy of Hong Kong on reclaimed land in Shenzhen, and I live close enough to look at it before breakfast.

Qianhai is a special cooperation zone on the western edge of the city, built to run Hong Kong’s institutions on the mainland. On the map I am closer to it than I am to Hong Kong Island. Here is the part that surprised me: the better Beijing’s copy works, the more valuable the original becomes, not less.

I went this May as part of a German Chamber of Commerce delegation. After the border I crossed into the zone in a Pony AI robotaxi, no driver, full autonomy. A few minutes later the avenues turned wide, clean and almost empty, glass towers set back behind landscaped green, the air quiet in a way central Shenzhen never is. It does not look like a city that grew. It looks like a city that was specified, then built to the spec.

Qianhai matters because it shows what China can do when policy, capital, infrastructure and institutional design all point at the same target. The skyline is the least interesting part. The wiring is what I came to read: where money, law and state ambition meet, and where my Hong Kong view of China either gets sharper or gets exposed.

My working view after the visit: the institutional layer is real, the wiring to Hong Kong is real, but the experiment is not yet proven. Growth has more than halved from its 2023 peak, the zone still runs on large subsidies, and no published figure yet separates the firms that came for the institutions from those that came for the cheque.

Ground Truth: What I Saw Standing In It

Numbers on a plan are cheap. What changed my read was standing in the place, looking at the parts that do not fit on a balance sheet.

The delegation was not a spectator’s outing. The room read as genuine commercial interest.

The sharpest moment was the aircraft. I sat in a pink eVTOL inside the zone, and I had it filed wrong in my head before I went. This is not a prototype going nowhere. It is a production aircraft you can actually buy, the S-Zero from YIVTOL. Even static, strapped into the seat, the low-altitude economy stopped being an abstraction.

I climbed in on the ground, not in the air. The demo site is not yet approved for passenger flights, so what I watched was a demonstration lift-off, not a ride. I plan to go back to the maker’s production facility for an actual test flight, and I will report on that when I do.

Seated inside the YIVTOL S-Zero.

The YIVTOL S-Zero doing a demonstration lift-off.

The same instinct, frontier technology as marketing, showed up over coffee. In the commercial office of the Shenzhen retail robot maker Anno, where we watched the machines run live, a robot barista ground the beans, pulled the shot and finished the cup with no human hand in the loop, then used its new AI module to print my own face into the foam. It is a gimmick, and it is designed as one: the machine is built to be filmed and shared as much as to pour a flat white. But it is also the cleanest small picture of what the zone is selling, which is automation as spectacle. The low-altitude aircraft and the latte-printing arm are doing the same job, turning “new productive forces” into something a visitor can stand next to and photograph.

The finished cup, my face printed into the foam by Anno's AI module.

The same machine pulling the shot, start to finish with no human hand.

None of this is data. The delegation, the aircraft and the robot barista told me one thing only: which parts of the official story survive contact with the place. That is most of what a visit ever buys you.

By then I could see myself living here one day. I had not gone in expecting that. That pull is the reason I am trying to read it honestly.

What Qianhai Is, and Why Beijing Built It

The geography is the policy. Qianhai is a spit of reclaimed land on the western edge of Shenzhen, directly across the bay from Hong Kong. It is one node in the Greater Bay Area, Beijing’s project to wire eleven cities, Hong Kong and Macao included, into a single economic region of more than 80 million people. Hong Kong sits at one corner of that bay with its convertible currency and its common law; Shenzhen sits across the water with the factories, the engineers and the capital. Qianhai is the seam Beijing chose to stitch the two together.

Fifteen years ago this was mudflats and low-rise. Today it is a finished financial skyline, and the before-and-after carries that part of the story on its own.

The spec is visible underground. Qianhai is the first mainland development zone built from scratch around a centralised cooling system: nine plants, 90 kilometres of underground pipes, ice thermal storage that charges at night and discharges through the day, seawater condensers feeding the loop. Every building connects to it by contract, a condition of the land transfer. From street level you see none of this, no roof-mounted chillers, no cooling towers breaking the skyline. A city built from scratch can bury its own plumbing.

The vision behind it is specific, and Xi Jinping has put his name behind it. He has inspected Qianhai repeatedly since his first visit in 2012 and has personally championed its expansion, and in 2021 the Central Committee and State Council published the Qianhai Plan, growing the zone in a single stroke from 14.92 to roughly 120 square kilometres, close to eightfold. The brief was explicit: make Qianhai the modern-services bridgehead to Hong Kong.

Beijing gave Qianhai a narrower job than another manufacturing park or tech park. Law, finance, accounting and asset management were the point: modern services run to something near Hong Kong’s standard, but on the mainland side of the border. Take the parts of Hong Kong that are hardest to copy, common law, a convertible currency, a century of professional trust, and give them somewhere to operate inside China. None of that is the sort of thing a mainland city can simply build.

So what is Beijing actually testing here? Currency, law, integration, talent: four versions of the same experiment. Can Beijing run Hong Kong’s software inside China’s hardware?

That is the bet: whether the institutional software of an open economy can be imported, run on mainland soil under a different legal system, and kept inside a zone small enough to switch off if it misbehaves. Qianhai is where China is testing whether it can have Hong Kong’s machinery without Hong Kong’s politics.

Is the Growth Real, or Just the Subsidies?

The headline growth is real, but it is no longer explosive. GDP growth has more than halved from its 2023 peak, the zone still runs on large subsidies, and no published figure separates firms that came for the institutions from firms that came for the cheque. Until that changes, the experiment is still unproven. By 2025, Qianhai reported RMB 218.2 billion of modern-services value-added, 212,000 registered enterprises and 183 Fortune 500 firms with a presence in the area. The three series that carry the story, GDP, foreign investment and trade, read better as trends than as single years, so they are charted below.

Qianhai GDP and nominal year-on-year growth, 2021–2025. The left-hand bars are shown in RMB 100 million units; the 2025 figure of 3,318.1 equals RMB 331.81 billion, about 16.6 per cent of Shenzhen's economy. The 26.4 per cent jump in 2023 came as the post-Covid rebound and the new master plan arrived together; 2026 is the first print without those tailwinds, and the first clean read on the zone's own pace.

Actual foreign investment used and its year-on-year change, 2021–2025. After the 2021–2022 peak, FDI fell almost 40 per cent in 2023 and has clawed back only part of the way since.

Qianhai trade and its year-on-year change, 2021–2025. The left-hand bars are shown in RMB 100 million units; total trade reached RMB 757.43 billion in 2025, up 7.2 per cent, after the 43 per cent surge in 2024.

The trend matters more than the level here. Qianhai's GDP grew 26.4 per cent in 2023, when the post-Covid rebound and the new master plan landed in the same year. The 10.3 per cent it printed in 2025 still beats Shenzhen as a whole, but it is well under half that 2023 pace. My read is that the cranes have done their work, and from here the institutions have to compound on their own. The largest single bet you can physically walk into is Tencent's. Penguin Island, the company's new campus, runs to 809,000 square metres of reclaimed land and about RMB 37 billion of investment, with more than 14,000 staff already on site at roughly 30 per cent complete and room for around 80,000 when it is finished. That is a company moving its centre of gravity.

Around it the institutions are accumulating: the Shenzhen-Hong Kong International Financial City now hosts around 522 financial institutions, more than 370 of them Hong Kong or foreign-funded; HSBC has put more than RMB 4 billion into its HYQ Tower, its first wholly-owned office complex in southern China; and the International Legal-services District, open since 2022, has drawn 182 legal-service entities, including seven Guangdong-Hong Kong-Macao joint-venture law firms.

The human numbers tell a narrower story. The zone’s own official boards, as presented to the delegation in May 2026, put its administered population at more than 1.3 million and the professionals it has drawn at 667,000. Against that, it has 3,316 foreign workers and 5,354 foreign residents. That is meaningful by Shenzhen standards, but tiny against Qianhai’s own scale. The zone is filling with domestic professionals much faster than it is becoming an international professional base.

The growth still runs on incentives, and they are large and getting larger: Qianhai’s 2024 measures pay qualifying foreign firms up to RMB 30 million a year, a Shenzhen-wide programme adds up to RMB 50 million, and a regional headquarters earns a one-off RMB 5 million. Competing for capital with a cheque book is fair enough, plenty of places do it. The problem is that no published figure separates the firms that came for the institutions from the firms that came for the cheque, and if the organic share were large and growing, it would be a number worth showing.

Tencent and HSBC prove that large anchors will show up. The harder test is the mid-sized foreign firm that chooses Qianhai for the institutions and nothing else: a law practice, a fund manager, an accountancy. Until that firm shows up without a subsidy attached, the case is still unproven.

Where My Money Already Sits

Here is where I have to correct a sentence I used to tell myself about this place. I used to say I had no money in Qianhai, that I only went to look. That is wrong, and walking the zone is what corrected it. I already own three pieces of how Qianhai works.

The first is Tencent. Penguin Island is the one position in this whole piece that I can physically stand inside. Tencent has genuinely planted itself in Qianhai, and that is not true of every name people attach to the zone.

The second is less obvious and matters more, because it is the plumbing. I own four Chinese state banks, which I hold as synthetic renminbi bonds rather than growth equities, a trade I set out in full in Why I Own China’s State Banks as Bonds, Not Stocks. They belong here because the cross-border renminbi rails Qianhai runs on are theirs. Bank of China is the designated offshore renminbi clearing bank in Hong Kong, and a fast-growing share of cross-border renminbi now clears through China’s own system, CIPS, which moved roughly RMB 180 trillion in 2025. Qianhai does not build its own currency plumbing. It uses theirs. I went to read this experiment directly. I own the rails underneath it.

The third is the most physical of the lot, and I only joined it up standing in the zone. I own China Merchants Port. The Qianhai bonded port zone, the logistics and free-trade spine the whole modern-services pitch is bolted onto, is planned, built and operated by China Merchants Bonded Logistics, a company it wholly owns. The reclaimed land I keep describing trades through a gateway run by a group I already hold. The ground this experiment is built on is in my portfolio, not just in my eyeline.

China Merchants Port’s container terminals in the West Port area of Qianhai. The bonded port zone, the free-trade spine the modern-services pitch is bolted onto, is operated by China Merchants Bonded Logistics, a wholly-owned subsidiary.

I hold no venture position inside the zone itself. The low-altitude economy I sat inside is an area I am actively exploring, written into the 15th Five-Year Plan as part of the “new productive forces” agenda, but exploring is not owning. I will not own a Chinese company unless I can see it in the Plan, and Qianhai is where the next chapters of that Plan get tested before they scale. I set the method out in full in How I Align My China Portfolio with the 15th Five-Year Plan.

So this is a held position, not a trade I am urging on anyone.

How Qianhai Plugs Into Hong Kong

The portfolio point only makes sense because Qianhai does not route around Hong Kong. It plugs into it.

Start with the renminbi. Hong Kong still sits on the world’s deepest pool of offshore renminbi, around RMB 1 trillion, and clears more than 70 per cent of global offshore renminbi payments. In June 2025 the HKMA and the PBoC launched Payment Connect, and in February 2026 the cross-border renminbi facility quota doubled to RMB 200 billion. Qianhai’s cross-border channels run on that Hong Kong infrastructure rather than competing with it.

The legal layer works the same way. The joint-venture law firms exist precisely so that Hong Kong common-law practice can reach onto the mainland. Qianhai can build the offices, the tax incentives and the cooling pipes. It cannot decree a century of legal trust into existence.

This is why I do not read Qianhai as a simple threat to Hong Kong. The obvious read is that Beijing is building a replacement. I do not think that is right. The wiring says something stranger: the copy still runs on the original’s plumbing. Firms choosing Shenzhen’s older finance district over Qianhai are choosing Shenzhen over Shenzhen. For Hong Kong to lose, firms have to choose Qianhai over Hong Kong, and that is not what the wiring is built to do.

The assumption underneath this is simple: Beijing keeps finding it cheaper to borrow Hong Kong’s convertibility and common law than to build its own. What would break that assumption is not a sudden abandonment of Hong Kong, but a quieter path where each successful pilot becomes a step towards replacing the original rather than leaning on it.

For that, I would need the renminbi fully convertible on the mainland and a mainland court trusted the way Hong Kong’s is. Neither is close. Both are earned over decades, not decreed. So I still read the rails as Hong Kong’s, and the signal I am watching is the convertibility pilots themselves.

The next Qianhai year-end enterprise data is the first real read. I will look past the headline registration count to the proxy underneath it: whether operating firms, not just subsidised registrations, are choosing Qianhai for the institutions. Get that, and the copy starts to prove itself. Without it, Qianhai stays an expensive piece of policy theatre.

As of the date of publication, I hold positions in Tencent (HKEX: 0700), China Merchants Port (HKEX: 0144), Bank of China (HKEX: 3988), China Construction Bank (HKEX: 0939), Agricultural Bank of China (HKEX: 1288) and China Merchants Bank (HKEX: 3968). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

I own four Chinese state banks through their Hong Kong-listed shares. They are paying me 6.8 to 7.4 per cent a year on cost while I wait to find out whether the political settlement on payouts holds — or whether the property book finally forces the kind of write-down nobody can absorb on the cohort’s terms. That is the entire trade. Everything else in this piece is the work I did to convince myself the wait is being paid for.

The positions: Bank of China (BOC), China Construction Bank (CCB), Agricultural Bank of China (ABC), and China Merchants Bank (CMB). Three of these, BOC, CCB and ABC, are part of China’s Big Six: the state-controlled giants that also include the Industrial and Commercial Bank of China (ICBC), Bank of Communications, and Postal Savings Bank. CMB is the largest of the joint-stock commercial banks rather than a Big Six member, included here for its wealth-management franchise. For BOC, CCB and ABC I initially paid trailing price-to-earnings multiples between 3.3 and 4.5 times in 2023 and 2024. The order of size today, largest to smallest, is BOC, CCB, CMB, ABC.

I bought them as bonds.

That sentence is the thesis. Not equities priced for growth. Not deep-value cyclicals waiting on a turn. Four lines of state-bank paper that I underwrote the way you underwrite a long-duration sovereign bond — except the coupon is higher and the duration is longer than anything actually available in the renminbi fixed-income market. The credit risk is absorbed by the sovereign, the currency exposure is to a renminbi I think is structurally undervalued over a ten- to twenty-year horizon, and the equity re-rating is optionality the market refused to price two and a half years ago and is only beginning to price now.

The sell signal is the payout ratio. The hold signal is everything else. A yield that falls from 7 per cent on cost to under 5 per cent at today’s price is not the trade breaking, it is the trade working. The chart below shows how rich that coupon has been: trailing yields on the three state banks peaked in double digits around 2021 to 2022 and have compressed to the mid-to-high single digits as prices re-rated, while CMB ran lower throughout and yields 5.8 per cent at the latest year-end.

The pillar that has to break before the trade does

A payout ratio of 30 per cent of net profit is the policy anchor across the cohort, written into the SASAC framework. Actual payouts have clustered tightly around it: across 2019 to 2025 the four banks paid out between 28 and 36 per cent of earnings every year, never once falling toward the 25 per cent line that would break the frame. CCB declared 30 per cent for 2025, its third straight year at that level, and China Merchants Bank’s articles of association set a constitutional floor of “not less than 30 per cent of the net profit attributable to the ordinary shareholders” — language filed at HKEX in May 2025 and unchanged since. The Big Six aggregate payout for 2025 landed near RMB 427 billion, up 1.6 per cent year on year.

That is not the behaviour of an equity board making annual capital-return decisions. It is the behaviour of an instrument with a payout floor written into the articles of association and into the SASAC framework above them. HSBC has now set 50 per cent as the target basis through 2028 on the 2025 annual filing, which is policy guidance, not a constitutional floor. JPMorgan runs in the 25 to 28 per cent range, conservative by choice. The Chinese cohort pays a smaller share of a larger absolute base, and the base is set by state policy. That is what makes the coupon bond-like. The Western banks pay like equities because that is what they are: boards setting the payout afresh each year.

Two falsifiability lines sit on this signal. A cohort-weighted payout below 27 per cent in any annual print is a yellow flag, a hard re-check on my scenario weights. Any single bank below 25 per cent breaks the frame, and the position comes down. Neither has triggered for 2025.

The Reckoning Point

I underwrite the property book more conservatively than the reported numbers invite. Across the cohort I assume the marks are softer than they look, and a synthetic bond is only ever as good as the balance sheet underwriting the coupon.

What lets me hold anyway is that I never paid for clean marks. I started buying in 2023 at a price that was already discounting a stress scenario worse than the one that has since materialised. Sector-wide property exposure has come down from 13.3 per cent of bank assets in 2021 to 10.4 per cent in 2024, and the system-level non-performing loan ratio sat at 1.51 per cent at the end of 2025. The 2025 prints are not clean. Provision coverage declined at five of the six Big Six banks, and retail credit, mortgages and credit cards especially, deteriorated. None of that surprises me. I bought the cohort with that risk in the price. The question I run on the property book is not whether the marks are accurate. It is whether the marks are improving.

There is a second hard fact, and it is the fairest objection to the whole bond frame. When the state absorbs the credit, it does not write a cheque to the H-share holder. It recapitalises the bank, and a recapitalisation can dilute the very equity it is rescuing. The live version played out in 2025. In June the Ministry of Finance subscribed RMB 520 billion of fresh equity into four of the Big Six, funded by special treasury bonds. Bank of China and China Construction Bank, two of the four lines I own, took part; Agricultural Bank and China Merchants did not. Bank of China sold its new shares to the ministry at RMB 5.93. That was only 0.73 times book, dilutive to per-share value, and at the same time a 7.8 per cent premium to the screen price. The H-share register I sit in, which did not take part, fell from 28.4 to 26.0 per cent of the bank. So the protection I am buying is narrower than the phrase first sounds. The bond frame insures me against the equity being wiped to nothing, which is the outcome the historical record actually rules out. It does not insure me against being diluted on the way through a rescue. Those are two different risks, and I only claim the first.

That changes what I watch, not whether I hold. The event that would make me re-underwrite is the other kind: a placement struck at a steep discount to a price that has already collapsed, the dilutive wipe rather than the supportive top-up. That has not happened to the four lines I own, and it sits beside the payout cut as the thing I watch for.

Four layers, one position

The bond frame has four transmission layers.

Currency. Over a ten- to twenty-year horizon I want exposure to the renminbi, not to companies that happen to be denominated in it. State-bank H-shares are the cleanest large-cap renminbi long I can buy from Hong Kong without taking active corporate risk. The dividends are paid out of mainland net profit in renminbi and converted at the time of payment. If the currency works over the horizon, every other layer benefits.

Multiple. The two charts below tell the rest: the three state banks have re-rated off the 2021 to 2022 bottom and still trade at a fraction of book, CMB richer throughout. Western peers trade at multiples of that, HSBC at roughly 1.6 times tangible book on the 2025 annual filing, JPMorgan above 2 times, DBS at 2.1 times on the SGX filing earlier this year. The gap does not need to close to parity for this to work. Almost any compression at all from where I bought is a structural tailwind on top of the coupon.

The reason the gap can close is that there is a large, structural buyer on the other side of the H-share line. The Insurance Asset Management Association of China reported in early 2026 that 63 per cent of mainland insurers planned to expand their Hong Kong-listed holdings, and of nineteen major insurer share-purchase announcements in 2025, thirteen were in Hong Kong-listed names and seven of those were banks. Two policy facts make the bid durable. The risk capital charge on long-duration equity was cut for insurers in late 2025, and the dividend tax on H-shares sits below the A-share equivalent for mainland holders. The mainland insurance balance sheet needs renminbi duration it cannot find in the onshore bond market at a yield that beats its actuarial assumptions, and the state-bank H-share is where it goes to find it.

Credit. I split the credit question in two: whether the coupon is still being earned, and whether the principal is backstopped. Take the coupon first. The full-year 2025 accounts confirm a net interest margin trough flattening, not a recovery. ABC, charted below, is the clearest read in the cohort: the margin has fallen every year this decade, but the decline has narrowed since 2023, and the rest of the Big Six show the same L-shaped trough. I am not waiting for a recovery before I hold; I hold because the bleed has nearly stopped.

What flattens that trough is the deposit funding cost reset, and it is the most important moving part of the trade. A Chinese family that locked savings into a five-year deposit at 5.3 per cent in 2021 can barely get 2 per cent if they renew today, and the banks are the ones who were paying that 5.3 per cent. As those old high-rate deposits come due through 2026 and roll over at today’s far lower rates, the banks’ single largest cost falls. Loan yields are falling too, under the same rate cuts, so this is not profit dropping straight to the bottom line. It is the force holding the floor under the margin. China International Capital Corporation, relayed by China Daily on 28 February 2026, put the scale of it like this:

According to estimates by China International Capital Corp, roughly 75 trillion yuan ($10.94 trillion) in household time deposits will mature this year, including about 67 trillion yuan with maturities of one year or longer. CICC projects that the volume of total household deposits and time deposits of at least one year scheduled to reach maturity in 2026 will increase 12 per cent and 17 per cent, respectively, from 2025 — equivalent to year-on-year rises of 8 trillion yuan and 10 trillion yuan.

Reprice that mountain at today’s rates and the banks’ funding cost falls by something on the order of a percentage point, on my own estimate rather than anyone else’s. They do not have to do anything clever to capture it; they simply stop paying yesterday’s rates. ICBC’s management described the mechanism plainly in September 2025:

Following the LPR cut we also promptly lowered our posted deposit rates, effectively offsetting the impact on our NIM. Through stringent control of debt costs, we ensured the stability of our net interest margin and net interest income.

The maturity wall is not a forecast. It is already moving through the liability side of the balance sheet, quarter by quarter, and it is what tells me the coupon holds.

Now the principal, and the floor under it is a document from 1999. In April that year the Ministry of Finance set up four asset management companies, one per bank, to take RMB 1.4 trillion of non-performing loans off the Big Four. The Bank for International Settlements, in its third Financial Stability Institute paper on East Asian public asset management companies, put the volume in context:

The four AMCs have been specifically mandated to take over approximately RMB 1.4 trillion (USD 170 billion) in distressed assets from the big four banks, equivalent to around 20 per cent of the combined loans outstanding of the big four banks or 18 per cent of China’s GDP in 1998. This mandated NPL transfer, however, represents less than half of the estimated NPLs of the big four banks.

Eighteen per cent of GDP, less than half of what was actually estimated to be bad, and by December 2002 only RMB 300 billion of the 1.4 trillion had been resolved at an average cash recovery rate of around 22 per cent. The carve-out was the political mechanism that made the IPOs of 2005 to 2006 possible. It also established what the Chinese state does when a Big Six balance sheet is in trouble. I am not arguing the 1999 model recurs identically. I am arguing it is the empirical floor under the sovereign-credit half of the thesis: anyone telling you the Chinese state will let a Big Six bank fail in a way that wipes the equity is telling you a story the historical record does not support.

The live worry on top of that floor is LGFV, the local government financing vehicle: off-balance-sheet companies Chinese cities set up to borrow and build infrastructure, and the banking system funds a large share of what they owe. The IMF’s February 2026 Article IV review put the sensitivity like this:

A 5 per cent default rate among LGFVs would equate to roughly a 75 per cent increase in system-wide non-performing loans, though this exposure is heavily concentrated outside the designated global systemically important banks.

The LGFV problem, an estimated RMB 78 trillion of debt, is concentrated at small regional and city lenders, not at the four banks I own. The Big Six are the system, not the risk inside it.

Optionality. This is where Bank of China earns its place as the largest line. I worked through what the plan means for the wider China book in How I Align My China Portfolio with the 15th Five-Year Plan; the piece relevant here is the financial plumbing. The CPC Central Committee’s October 2025 Recommendations for the 15th Five-Year Plan, the upstream document for the Outline adopted at the NPC in March 2026, set the architecture out directly:

Secure and efficient financial infrastructure should be put in place, and the digital Renminbi (RMB) should be steadily developed.

And on the factor markets above that infrastructure:

To promote the efficient allocation of all types of resources and production factors, we should develop a robust unified market for urban and rural construction land, a fully functional capital market, a free-flowing labor market, and a technology market that facilitates efficient industrial application.

The usual proxy here is the renminbi’s share of SWIFT payments, and it is the wrong one. SWIFT carries the messaging, not the settlement, and a fast-growing share of cross-border renminbi now clears through China’s own system, CIPS, which a SWIFT figure never sees. So I watch the pipe that actually carries the flow. Volume through CIPS reached RMB 175 trillion in 2024, up 43 per cent, and roughly RMB 180 trillion in 2025, more than triple its 2020 level. The renminbi settled close to 54 per cent of China’s own cross-border payments by July 2025, double a decade earlier, and in 2023 passed the euro to become the second-largest trade-finance currency. That build-out of the plumbing, not a messaging-share headline, is the second-derivative move the optionality layer was sized for.

The optionality has a domestic leg too, and it shows up first in the fee line. Net fees and commissions turned positive at all six Big Six banks in 2025, ABC and Postal Savings above 16 per cent growth, and system-wide wealth-management balances reached RMB 33.3 trillion by year-end, up 11 per cent. Some of that is cyclical. Some of it is the franchise CMB has spent a decade building finally compounding, dividend coverage from a line that does not lean on the loan book. CMB sits on the middle-class wealth thread: as the plan lifts household income and deepens the capital markets, the strongest retail franchise earns the fees on that migrating money, the deposit wall showing up as fee income rather than a funding-cost saving. ABC sits on the Three Rurals mandate, the rural and agricultural priority the plan keeps funding, which gives it the clearest claim on state-directed credit growth when the cities are slow.

The optionality I bought for free in 2023 has been formalised into policy language in the 15th Five-Year Plan. That is what has changed in two and a half years. The bond coupon was always there. The map now has names on it.

What I actually own

The 3.3 to 4.5 times earnings I paid in 2023 and 2024 is gone, and even after the re-rating these still change hands near half of book value. But the entry multiple was never the point. What I own is not a cheap equity. It is a callable, very long-duration synthetic bond on the renminbi, with embedded equity optionality the bond market does not offer and the equity market did not price.

The coupon is set by political mandate, the credit is held up by the sovereign, and the price is sitting through the optical noise of a banking-sector P&L for a decade or longer. In exchange I get the only structural way I have found to be long the renminbi at a yield that beats a long-only investor's actuarial assumptions. If the equity never re-rates, the downside case is clipping 6.8 to 7.4 per cent for the duration. For a coupon I bought as a coupon, that is a perfectly good outcome. It is the same income trade I run elsewhere in the book, where I am earning about 6 per cent to own China's AI infrastructure while the optionality matures.

Only one thing actually ends it. It is not the property book, which I bought into the price, and it is not a dilutive recapitalisation, which would make me re-underwrite rather than walk away. It is the payout settlement itself, the day Beijing decides these banks should hold capital back rather than pay it out. That is the one line I cannot hedge, and the August 2026 interims are the next read on it. The coupon holds until the mandate that sets it decides otherwise, and not one day before. Until then I run the book as it sits.

I wrote this from Hong Kong, against the HKEX filings of the four banks on the desk, the State Council’s English-language record of the 15th Five-Year Plan Recommendations, and the Bank for International Settlements paper that sits open behind the position.

As of the date of publication, I hold positions in Bank of China (HKEX: 3988), China Construction Bank (HKEX: 0939), Agricultural Bank of China (HKEX: 1288), China Merchants Bank (HKEX: 3968), and DBS Group (SGX: D05). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

I own three Chinese state telcos. They are paying me roughly 6 per cent a year while I wait to find out whether the state’s AI infrastructure build shows up in the earnings — or eats them. That is the entire trade. Everything else in this piece is the work I did to convince myself the wait is worth it.

In the United States, a telco is a pipe. Traffic flows through it, built by others. In China, the operator owns the build site, holds the state procurement, and writes the cheque. That is not a nuance. It is a different business. China Mobile (CM), China Telecom (CT) and China Unicom (CU) are not pipes for AI built elsewhere. They are the licensed infrastructure inside which the state’s computing build is being capitalised.

The last time these three were asked to build national infrastructure at scale, shareholders got less cash for six years. The 2008 to 2013 3G build-out is the analogue. The state has done the naming again. That is the risk I am underwriting against, and it has not gone away. The market has stopped treating these three like dead phone utilities; it has not yet decided whether they belong inside China’s AI+ infrastructure stack. That undecided gap is the trade.

All three are dual-listed: H-shares in Hong Kong, A-shares in Shanghai. Same underlying company, same annual report, same dividend cheque. Different price. A-shares trade at a premium that implies roughly 4 to 5 per cent yield for mainland investors. H-shares imply 5.6 to 6.5 per cent for Hong Kong investors on the same dividend. I hold H-shares for that reason.

I started buying all three in 2023 and 2024, and added again on sell-offs in 2025 and on the 2026 VAT reclassification. The reasoning then was simple: depressed prices, attractive yields, three state-owned enterprise (SOE) backbones inside the national network. A value investor did not need to believe anything else about the future to find that combination interesting. One of my mentors had bought a year earlier, at the 2022 low; his work was done. Mine was not, and I waited.

Why a Chinese telco is not a Western telco

A Chinese state telco is a licensed builder of national infrastructure under a Five-Year Plan mandate, sitting beneath a single shareholder — the State-owned Assets Supervision and Administration Commission (SASAC) — with state procurement directed to domestic providers by both regulation and incentive. A Western telco is a pipe for compute built elsewhere. Same word on the stock screen, different business behind it.

Verizon’s AI infrastructure is a low-latency fibre product for third-party hyperscalers. British Telecom’s (BT) AI thesis is cost-out inside a regulated incumbent with pension obligations. The compute is somebody else’s. Deutsche Telekom (DT) is the closest Western analogue: sovereign-compute pivot, regulated domestic procurement, premium multiple for the digital-sovereignty story. Even DT is buying capacity that others operate.

In China, the 15th FYP names the National Unified Computing Power Network as core infrastructure and writes the operators into the chapter. SASAC owns the controlling stake in all three. The shareholder, the regulator and the procurement counterparty are the same balance sheet.

The 15th FYP screen, applied to the three

China Telecom’s 2025 Annual Results Presentation guides total capex down 9.2 per cent to RMB 73 billion (~US$10.7 billion), and inside that smaller envelope computing infrastructure rises from 25 to 35 per cent of mix while network infrastructure falls from 51 to 41 per cent. Cash reallocated to where the plan says the build will happen, not added on top of where it was already going. That single slide is what Five-Year Plan execution looks like inside a corporate budget.

I have a rule on Chinese equities: I will not own one unless I can see how it rides the current Five-Year Plan. The transmission from chapter language to dividend cheque runs in five steps. The state names a priority. The Ministry of Industry and Information Technology (MIIT) defines the network architecture. The telco moves capex. The segment line shows revenue. The dividend tells me whether shareholders are still being paid while that happens. Break any one and the trade weakens.

The chapter language is unambiguous. Chapter 7 of the 15th FYP mandates the National Unified Computing Power Network: ultra-large-scale clusters, compute-energy coordination, allocation scheduled across regions. The AI Plus action lists model, chip, cloud and application as a coordinated stack. The 2026 Government Work Report names both as priorities. That is step three in the chain: the plan has reached the budget.

Stage three: the growth gets rails

In late April and early May 2026, all three operators stood up within a fortnight and named what they were building: a Token factory. The phrase each used varied. The structure was identical — IaaS compute at the bottom, a scheduling and model layer in the middle, Token billing at the top. Stage three of this thesis is the moment that build went from inferred to publicly committed.

For two years before that, the growth half of this thesis ran on inference. The FYP chapters were clear. The capex mix was shifting. The segment lines were appearing. But no operator had stood in front of an audience and named what they were building.

At the 9th Digital China Summit, China Telecom’s cloud subsidiary Tianyi Cloud launched what it calls a one-stop Token service system, structured around serving AI Token demand at scale. The IaaS layer is already at 91 EFLOPS of self-owned and accessed compute; the stated ambition is a full-stack national infrastructure for Token production. China Mobile followed on 8 May at its annual cloud conference in Suzhou. The chairman announced a Trillion-Token Service Trial Package. The company launched MoMA, a model management platform integrating over 300 AI models with real-time Token billing. China Mobile’s management said explicitly that Token operations cannot yet replace mobile data revenue. I found that last disclosure more useful than the headline number. It tells you the growth runway is still early, and management knows it.

China Unicom announced Token-based computing packages and said it will drive Token volume growth through computing power sales and model access.

The state has provided the framing. In May 2026, Xinhua and CCTV both described the national computing power network as the "computing version of the state grid." Daily Token calls in China exceeded 140 trillion in March, more than 1,000 times the level at the start of 2024. Computing power has been classified as one of China's "six networks," alongside water, power, and logistics. This is the plan being executed in real time.

In 2023, I was mostly being paid to wait. In 2024 and 2025, the growth case was still inferred from policy and capex mix. By 2026, the operators had named the thing they were building. The Token is the unit of account the industry has chosen, and the state has ratified it. Whether this translates to a sustained earnings upgrade is what the August interims will begin to answer. I do not know the answer. That was enough for me to own the sector. It was not enough to own the three names equally.

The sector bet, in order: CM > CT > CU

I size CM largest, CT second, CU smallest. CM is the cohort’s cleanest income position — largest stack, 77 per cent payout, the operator the state would call on first if shareholder cash were needed. CT is the cloud and government-enterprise growth play, where the August 2026 interim results — the first H1 earnings print since the Token factory was named in April — are the first read on whether the Token scheduling layer carries margin. CU is the capital-discipline tail — the thinnest growth disclosure, the most room to disappoint, and the cleanest payout-convergence optionality. I own all three. The differences inside the cohort earn the sizing.

China Mobile is the scale anchor. Backbone operator, 92.5 EFLOPS of computing capacity at FP16, and the largest balance sheet of the three. Payout 77 per cent in 2025, up from 71 in 2023, with 2026 guidance flagged as stable-to-rising at the Capital Markets Day. Its growth play is what the chairman named in Suzhou: the Trillion-Token Service Package and the MoMA platform, sold on the largest stack in the cohort. If the income thesis breaks anywhere in the cohort, it breaks here last. The live alternative is not a revenue miss — it is a payout decision: CM is the operator the state would call on first if the build required shareholder cash, and it has done exactly that before.

China Telecom is the cloud and government-enterprise position. Cloud revenue RMB 120.7 billion (~US$17.8 billion) in 2025, the cohort's first RMB 100 billion milestone. AIDC RMB 34.5 billion (~US$5.1 billion). Security revenue RMB 16.6 billion (~US$2.4 billion) as a standalone line. Its growth play is the Tianyi Cloud Token service named at the Digital China Summit: five layers from compute to application. The useful part is the scheduling layer: guaranteed Token throughput sold with SLA-level commitments, not raw capacity. Whether the margin model follows is the August question. The disclosure says the model exists, not that it is profitable. CT is the cohort name where the story is easiest to believe. That is why I am hardest on it.

China Unicom is the capital-discipline tail. Smallest position. Free cash flow RMB 36.0 billion (~US$5.3 billion) in 2025, up 28.5 per cent on net profit growth of only 1 per cent. I read this as capex restraint rather than revenue momentum; the less flattering read is that CU simply cannot find shovel-ready AI spend at its scale, which would make restraint a tell. The 2027 budget separates the two. Payout sits at 63 per cent against 77 per cent at the other two. That is where the re-rating optionality sits: if CU's payout drifts upward toward 77 per cent, the dividend grows, and the price has to re-rate to hold the yield in line with CM and CT. Its growth play is the Token-based computing packages announced alongside the others, sold for computing power and model access, with smaller scale framed as a flexibility advantage. CU is where I have the least disclosure and therefore the least patience for disappointment.

I am not picking the telco that wins the computing build. I own the listed SOE layer through which part of the build flows: income prices in 2023, growth prices in 2026.

The valuation anchor: CM 11.95×, CT 13.70×, against Deutsche Telekom at 14.02×. The income re-rating from the 2021 trough — CM from 6.85× — is largely in. The next leg of return, if it comes, depends on whether the growth named in April converts to segment-line earnings inside the August interims and the FY2026 Capital Markets Days. CU sits inside the same valuation logic but trades on a free-cash-flow story rather than a clean trailing multiple, which is part of why it is the smallest of the three weightings. The easy income re-rating is mostly gone. The reason I will not pay for it naively is what happened the last time these three were asked to build.

Why 2009 still sits in the middle of my thinking

Across the 2008 to 2013 3G build-out, China Mobile held its payout ratio at 43 per cent for six consecutive years; China Telecom held DPS flat through 2008 and 2009 at an inferred 30 to 35 per cent payout; China Unicom’s 2012 payout sat at 25 to 30 per cent against RMB 99.79 billion (~US$14.7 billion) of capex. Payout suppression of 25 to 40 percentage points lasted six years. The only thing that historically broke the income on these three was the state asking them to build something, and these are the numbers from the last time it happened.

I went to the HKEX primary filings to read the mechanics underneath the headline. CT's DPS sat flat at HK$0.085 across 2008 and 2009 while the C-network integration ran. CU's 2012 DPS was RMB 0.12 (~US$0.02) against that RMB 99.79 billion capex envelope. Board language across all three referenced "investment needs" and "long-term sustainable development". Calm. Administrative. The payout ratio did the talking.

No SASAC or MIIT directive appears in any board disclosure I retrieved. The instruction may have existed. It was not in the public text.

BT cut its dividend in 2020 while funding a national fibre roll-out the UK government had defined as strategic infrastructure. When a company is the national network, shareholder cash becomes the balancing item when the build requires it. China is more direct about that balance.

This is why I will not pay 12× earnings naively.

Why 2026 is not 2009

I do not think 2026 is 2009, for three reasons.

Capex direction. In 2008, the operators were ramping into a build. In 2026, total capex is flat to declining across the cohort. CM cut 2025 capex 8 per cent to RMB 150.9 billion (~US$22.2 billion). CT guided 2026 down 9.2 per cent to RMB 73 billion. CU’s free cash flow rose 28.5 per cent on net profit growth of only 1 per cent, with the capex burden falling. The mix inside the smaller envelope is shifting to AI infrastructure, but the envelope itself is not exploding.

Revenue visibility. The 3G build created the network first and the monetisation later. The AI+ build is already showing up in cloud, AIDC, computing services and security revenue, year by year, in the segment lines. That is a different sequence inside the income statement.

SOE reform direction. The SASAC value-creation framework, often referenced as Document 79, and the later SASAC market-value management push, are distinct documents and I treat them so. The first is a profitability and value-creation campaign for central SOE managers. The second pushes listed central SOEs to manage market value, capital returns and shareholder communication. CM's payout moved from 71 per cent in 2023 to 77 per cent in 2025 inside that framework. The trajectory tracks the framework dates, CT and CU have moved in the same direction over the same window, and management cites shareholder-return language at the Capital Markets Day. Declining capex may be doing more of the work than SASAC. I read the SASAC direction as the most plausible cause; I cannot separate it cleanly from the cash-flow effect on the public disclosure.

I am not treating it as a guarantee. It is the changed incentive set I am underwriting on top of the income floor.

What I am watching for, on a five-year horizon

I am watching three things across three release windows: capex mix at the August 2026 interims and the FY2026 Capital Markets Days; payout trajectory across the same prints; the 2027 budget disclosures, where guided intent either becomes durable or does not. If the capex mix and payout trajectory hold through that window, the cohort thesis is intact. The horizon is the FYP duration, not a single earnings print.

I am a Bayesian investor on long positions. I update on what the data tell me, in proportion to how informative each release actually is. The August interims are one input, not the picture.

On CM, the indicator is the disaggregation of the AI services line. If management starts separating infrastructure services (computing, cloud, security) from bundled content (MIGU, e-commerce), the disclosure quality improves and the underwritten thesis gets cleaner. If the bundle hardens, the underwritten thesis weakens whether or not the headline number grows.

On CT, the indicator is the capex mix continuing to shift toward computing infrastructure inside a flat-to-declining envelope. The 26 per cent to 35 per cent guided shift for 2026 is the signal of intent. The 2027 budget will tell me whether the intent is durable.

On CU, the indicator is payout convergence. If the payout drifts from 63 per cent toward 70 per cent, the yield compresses through price and the re-rating optionality earns out. If the payout stays low while capex obligations rise, the income story weakens before the growth story has had a chance.

Across all three, the indicator that would change my view of the cohort, not the timing, is SASAC’s central-SOE performance assessment. CU’s 2025 Sustainability Report ties performance assessment for central enterprise managers to AI computing power targets. If a future round of criteria encodes computing-power floors as a hard performance measure, the cohort-wide capex discipline is at risk and I would revisit the sector weight before any individual name. That is the single most important unresolved data point in the position.

The trade I am still in

Adding now is harder than buying in 2023. The 2023 buy was easy. Price was low, yield was high, and the underwriting required nothing more than valuation discipline. The 2026 hold is harder. The easy part has played through, and the remaining return needs a state-mandated growth story to deliver where chapter language and filing disclosure currently disagree.

That is the trade I am still in. I bought the position because the work justified it. I keep the 2009 filing on the desk because the last infrastructure cycle did not hurt the thesis first. It hurt the payout.

As of the date of publication, I hold positions in China Mobile (HKEX: 941), China Telecom (HKEX: 728), and China Unicom (HKEX: 762). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

When ServiceNow (NOW) printed Q1 2026, the number was unambiguous. Revenue acceleration. No margin collapse. No evidence that AI-native start-ups were cannibalising the installed base. The print read like the thesis I had been holding for months — and the market sold the stock off seventeen per cent on the news. Analyst downgrades printed alongside the move. The good-till-cancelled (GTC) orders I had set months earlier at the lower end of the fair-value range filled themselves into the drop. The only decision I had to make in that hour was whether to cancel the unfilled tranches. I did not.

The piece of the institutional desk that nobody can buy is not the research. It is the calm. I learned this the slow way: twenty-five years in and around institutional finance, the last six inside a family office, before leaving in 2024 to run the book alone. The question I could not yet answer was whether the discipline had become mine, or whether it still belonged to the desk. The orders that filled themselves while NOW was seventeen per cent lower on a thesis-affirming print are part of the answer. Not the buying — the not-cancelling. Passing that test once does not close the question. The next sell-off may be the one I cancel into.

I am two years in on my full-time investment journey. The research half of the desk is no longer the bottleneck. Five custom AI agents on US$32 a month of reasoning models, sitting on top of a Notion workspace that remembers everything, get me to a depth that used to require several people collecting sources, reconciling filings, and building the dossier. That does not make them a research team. It gives me research-team reach, with one human still responsible for judgement. The other half — the calm that lets the calm-weather version of me do the buying while the in-the-moment version sits on his hands — is not solved. The market is engineered to take that calm away from a retail investor, and the engineering is getting better.

The structural edge of running alone

Running a liquid book alone gives me three structural freedoms an institutional desk does not have: no benchmark to hug, no redemption risk, no career risk. Those are not minor. An institutional desk that tries to run the habits in this piece runs them into a headwind — quarterly performance windows, redemption cycles, the politics of underperforming a peer for two quarters in a row. I have none of those pressures, so the habits compound instead of fighting to survive. That is where the asymmetry comes from, and it is structural — but only when the habits are in place. Without them, the freedoms are just unsupervised drift. The family office taught me the habits. Leaving it taught me they were always the asset, not the headcount. The two scenes below show them under live fire.

Scene one: buying into the SaaSpocalypse

Through late 2025 I held the bull case on three US enterprise-software names — Salesforce (CRM), NOW, and Veeva Systems (VEEV). The market had moved to the opposite view. The narrative was the SaaSpocalypse: large language models would cannibalise the installed base, AI-native start-ups would bypass the incumbents, and the seventy-plus per cent gross margins these businesses had earned for two decades would compress as AI features became table stakes. I disagreed with the market on the business case, not on price. The agentic-workflow case for the incumbents looked stronger to me in an LLM world, not weaker. On price we agreed — these names had been too expensive for me to act on, for months. Valuation was the binding constraint.

What follows is the dossier I built to make sure I was not the one missing something. A logical bear case deserves a proper answer before you bet against it. The answer below is what got me to fair-value ranges I was willing to act on. It is not a full underwriting note for the three positions — I owe that piece separately — and the load-bearing question for this scene is not whether the dossier is right. It is whether the habits held when the print arrived.

The bear case was coherent. That was the problem. A coherent bear case on a name I want to own is the one I have to answer properly, not dismiss or minimise.

The dossier became three tests. I did not trust the bull case until it had cleared all three.

The first test was the data moat. A large language model reasons probabilistically — it works in distributions. Enterprise workflows are not probabilistic. When a customer asks for a refund, the CRM workflow has to be deterministic: same input, same output, every time. The next generation of enterprise systems is precisely that combination — agents reasoning probabilistically, calling deterministic workflows for the actions that have to be exact. CRM, NOW, and VEEV are the systems of record the agentic stack has to call into, and they own the deterministic workflows around that record. Ten years of sales history, customer relationship maps, service interaction logs — context no foundation model can replicate from general training. That is what the sell-off had missed.

Then came the enterprise plumbing: security and complexity at scale. Inside a large enterprise in 2026, point solutions proliferate — one agent for HR queries, another for IT helpdesk, another for sales outreach. Within a year there are fifty independent AI systems from fifty different start-ups running against core data. Every one is a potential prompt-injection vector. Every one requires IT approval, security certification, user retraining, and the political buy-in of the SVP whose department it touches. The CTO ends up insisting on a single system of coordination: a pre-approved, enterprise-grade, security-audited platform the team already knows, one that connects to the systems of record they already run. That is ServiceNow’s AI Control Tower. That is Salesforce’s Agentforce. The bear narrative systematically ignores this constraint because it is modelled by people who have never sat in an IT governance meeting or only care about next quarter’s numbers.

The last test was where the asymmetry actually lived. Today, CRM and NOW compete for IT and software budgets — measured in tens of billions. If AI agents automate work previously done by people — inside sales, tier-one IT support, compliance workflows — the relevant budget shifts. It is no longer the software line item. It is the labour line item. Corporate headcount budgets are measured in trillions. An enterprise deploying agents at multiples of the output-per-dollar of a human employee is not buying software any more. It is replacing payroll. The platform does not automatically take that budget. The incumbents that climb from systems of record into the system of action — the layer that executes tasks rather than stores data — become the toll roads across that flow. Once a customer is hooked on agents that work, the switching cost is the institutional memory embedded in the data model, not the software contract. Existing-book gross margins may still compress as agentic pricing pressure works through. The labour-budget asymmetry is what makes the platform worth owning anyway.

Then the market obliged.

That was the dossier I had on the desk by late 2025. Fair-value ranges, on my numbers, well below market price for months. Sizing decided in calm weather. Then the SaaSpocalypse arrived: a multi-month software capitulation, deepened by Middle East war pressure on risk assets. CRM and VEEV filled close to the peak of the bearish sentiment — bought, in the moment everyone else was selling, by orders the calm-weather version of me had set months earlier. The starter tranches in NOW filled in the same window. That part was uneventful — calm-weather work doing what it is supposed to do.

The eventful part was NOW. The Q1 2026 print landed inside the SaaSpocalypse, not after it. Revenue accelerated. The CFO commentary described exactly the agentic-workflow adoption I had spent six months underwriting. Guidance for the remainder of the year flagged slightly lower margins on the cost of integrating recent acquisitions — acquisitions that, on my reading, strengthened the data moat the case rests on. The market read it as margin pressure. The moat point was ignored. The stock dropped seventeen per cent. Analyst downgrades followed. The GTC orders I had set in calm weather, sitting in tranches at the lower end of my fair-value range, started filling against a tape that was telling me I was wrong.

I did not sit through those hours calmly. A tight pull behind the sternum. The urge to cancel before they embarrassed me further. A low, hot kind of regret — the suspicion that someone else was seeing something I had missed, and the orders were going to keep filling all the way down to a number that would look very stupid in a month.

I named what I was feeling. Then I did the cognitive move the Budapest test had taught me a year earlier: separate the feeling from the state of the business. The print was the business. The price was the print being processed by a market that had decided in advance what the print was going to say. The dossier had not changed. Three questions. Had the data-moat case weakened on this print? No — the CFO commentary and the acquisitions had strengthened it. Had the security-and-complexity case shifted? No. Had the labour-budget asymmetry moved? No. The price had moved. Nothing else had.

I did not cancel the orders. The remaining tranches filled over the next two days. The position is currently above my entry; that is not the point. The point is the decision-shape, which has to be the same whether the stock immediately rewards it or sits underwater for two quarters. I do not know which it will do next, and writing this piece is not predicated on the answer.

What this scene shows is the four habits running into a moment that tests them. Investment policy: the fair-value range was set in calm weather, in writing, weeks before the print. Primary-source research: the bear case got a proper answer, not a dismissal. Calm-weather decision-making: the rule was if a thesis-affirming print arrives and the market sells, let the orders fill inside the range. Execution discipline: the tranches sat in the book and filled themselves while the screen was red. None of this was AI-enabled in the moment. The AI desk wrote the policy. The policy set the orders. The orders built the position. What the moment required of me was not action. It was the discipline not to cancel.

That is the harder of the two registers. The next one is easier — and shows what the system does when I can mostly stay out of its way.

Scene two: scaling China Everbright Water through the 14-to-15 Five-Year Plan bridge

Late 2025. China’s Fourth Plenum hits the wires in the early afternoon, Hong Kong time, on a desk twenty minutes from HKEX. Within the hour the outline of the 15th Five-Year Plan — the country’s economic priorities for the next half-decade — is on my desk. Beautiful China. Water governance named a structural priority. Priority regions made explicit. I am already long China Everbright Water (CEW), a position I initiated in September on work my AI desk ran through August. The Plenum did not trigger the trade. It extended the visibility of the policy the trade was already inside — same direction, longer clock, regions named. That earned the scaling decision.

The interesting moment in this scene is not the Plenum. It is September — buying the position with nothing external yet rewarding me for it.

Under the still-running 14th Five-Year Plan, the research desk worked open-ended. I do not read Chinese well enough to underwrite a policy thesis unaided. The workflow had to be built around that fact. Build a longlist of regulated water-treatment operators that fit the income book. Map the transmission chain from policy mandate to operator cashflow. Work that used to take a team a month. I did it in hours. That speed mattered: it freed August for the policy-to-cashflow work itself, not the data collection. When CEW emerged at the top of the longlist, the agent’s instructions changed: filings only, Plan clauses returned with Chinese alongside English, missing data flagged rather than guessed. The workflow is deliberately suspicious — clause references preserved, any gap treated as a gap rather than filled with fluent nonsense. Conviction does not survive a summary. It survives a source — and on a Chinese-policy thread the source is in Chinese.

By September the numbers were clear. Fair-value range, size band, starter conditions written into the policy in August, while the thesis was still cooling. Looking at the quote screen in September, the in-the-moment version of me wanted to wait. CEW is a smaller operator in a sector I know less well than Chinese banks or insurers; the instinct was to size conservatively and watch another month. Nothing on the tape rewarded the decision — no catalyst, no upgrade, no peer move. Waiting another month felt like the disciplined thing. The August version of me had already overridden that. I bought. Calm-weather decision-making is not the absence of doubt. It is a policy with the authority to override doubt — written when the doubt was not in the room.

When the Plenum outline landed, the same deterministic pipeline ran against the new text. Mandate confirmed and extended; priority regions named; cashflow profile re-tested. The rule fired: if visibility extends, scale to the upper band. I had already decided in August. I executed. By the time the National People’s Congress formally approves the Plan in March 2026, the position has been at its new size for nearly five months. The news prints. I do nothing. Execution discipline, in this case, is the absence of action.

Scene one was holding my nerve while the screen ran red. This was overriding quiet doubt while the screen showed nothing. Same discipline. Different kind of discomfort. The AI gave me depth: policy reading, primary-source checks, and enough Chinese to stop pretending I could underwrite the thesis unaided. The decisions were still mine, twice, and both were made before the screen gave me anything back.

How the desk actually runs

Two reasoning environments. US$32 a month. The tools are not what matters; the architecture is. The architecture turns on one distinction: probabilistic versus deterministic mode. Probabilistic mode is hypothesis work — building the regulated water-treatment operators longlist from a sector universe, ranking by fit to the income book, mapping how a policy mandate plausibly transmits to operator cashflow. The model reasons across distributions; the answer is honestly uncertain and meant to be.

Deterministic mode is the opposite. When CEW emerged at the top of the longlist, the agent’s instructions changed — filings only, Plan clauses with Chinese alongside English, missing data flagged rather than guessed. No improvisation. No fluent inference papering over an absent source. The same model on the wrong mode on the wrong task is worse than useless: it sounds confident about the thing you most need it to admit it does not know.

The full architecture — five agents, the Notion memory layer, how the mode distinction is enforced in practice — is a future piece. What matters here is that the US$32 buys the discipline of mode, not the discipline of the operator.

What the two scenes earned

What the two scenes earned, between them, is the documented version of the four habits twenty-five years in markets installed in me — six of them inside a family office: write the policy in calm weather; read primary sources, not paraphrases; make the hard call when nothing is rewarding it; set the trade up before the moment arrives. The market is engineered against all four — which is why the moment is the wrong place to make them.

The half the US$32 does not buy

The architecture is cheap, deliberately so. When the tool is expensive, I justify using it whether or not it is working. The discipline that decides when to use it is the part that took twenty-five years to build.

What I left the family office with was not a system. It was the knowledge of what good looked like — and a trained instinct for the difference between a market that is genuinely wrong and a portfolio that is genuinely broken. The AI stack is what let me rebuild the depth without rebuilding the headcount.

No Pain to Begin With sets out the structure. Volatility Is the Admission Price sets out the psychology. This is the operating layer that sits beneath both.

But the more I run this desk, the clearer it becomes that the binding constraint is not analytical depth. It never was. The binding constraint is what I described sitting in Budapest a year ago — the gap between what I felt and what I knew, and the willingness to act on the latter while the former was still screaming. That gap is not closed by better models. It is closed, slowly and unevenly, by accumulating enough experience that the subconscious mind starts to recognise the pattern rather than flinch at it.

The test is whether the calm-weather version of me is still in the room when the moment arrives — and whether I can tell, in that moment, the difference between a price moving and a business changing.

The US$32 builds the first. The second is built more slowly, on real tests like the one I described at the top of this piece.

The discipline was always there. The question was always whether I could run it alone. The answer, so far, is yes — but the words so far are doing real work in that sentence.

As of the date of publication, I hold positions in China Everbright Water (HKEX: 1857), ServiceNow (NYSE: NOW), Salesforce (NYSE: CRM), and Veeva Systems (NYSE: VEEV). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

In March 2026, the National People’s Congress (NPC) adopted the Outline of the 15th Five-Year Plan (FYP). The Outline is the screen I will run every name in my China book through for the next five years.

By the time the vote landed, I had been reading its signals for half a year: the Party plenum communiqué in October 2025; the Central Committee’s Recommendations on the 15th FYP in November; MIIT’s AI Plus and Digital Infrastructure action plan in January. The published Outline did not come out of nowhere. It came out of a paper trail that anyone with an indecent quantity of pu-erh tea could read in advance, which is what I did.

The financial press treated the document as a slogan inventory the morning after the vote: AI Plus, Beautiful China, RMB internationalisation, Belt and Road, technological self-reliance. That is not how I read it.

My one-line rule on Chinese equities

I have invested my own money in Chinese equities since 2018. Eight years in, one rule does most of the work: I will not own a Chinese company, public or private, unless I can see how it rides the current Five-Year Plan.

The FYP is not destiny. The 14th FYP correctly called the property deleveraging in writing, and the Hang Seng Mainland Properties Index still fell roughly 75% from its 2021 peak. Plan-right does not equal stock-right. The cautions are part of the rule, not an afterthought, and I will come back to them. The reason the rule still does the work is narrower.

In China, the FYP is the closest thing to an operating manual that the state ever publishes about itself. The chapters tell you what gets funded, what gets licensed, what gets procured, and what the cadres running provincial economies will be evaluated against in five years’ time. If a company I am thinking of owning is not in the chapters, the structural tailwind I am trying to underwrite is not there. If it is in the chapters, I have at least bought myself a fair fight.

The confirmation arrives in chairman letters. I read the FYP first for its house style: the phrases that are too bureaucratic to be accidental, and too specific to be filler. Then I look for the echo. Annual results, capital-markets days, Party committee language, segment descriptions, sometimes a chairman letter doing its best impersonation of a State Council notice. When the same wording appears downstream, I mark it.

The check is that simple. When China Mobile uses the FYP’s exact framing on AI Plus or computing-power networks in its annual results, I am not reading marketing. I am reading translation from state policy to corporate strategy, in print, and free of charge. The phrase is the company telling its regulator, its shareholders, and the cadre evaluating its Party committee that it has read the manual and is acting on it. That tell carries more signal than almost anything else an outside investor gets in this market.

Why these things bind, and when they don’t

Five-year plans bind, when they bind, because the people executing them get graded on them. The 2019 Regulations on the Evaluation of the Work of Party and Government Leading Cadres are still in force. The mechanics are unromantic. A Party committee evaluates a cadre once a year and at the end of each term. Indicators include implementation of Central decisions and “high-quality development” outcomes, which is the technical phrase for “the things written in the FYP.” A “basic competence” rating triggers a formal admonishment and a deadline to improve. A “poor” rating costs the cadre a rank. Sustained underperformance can cost the principal responsible person the job. That is why the manifesto is a manual. “The state has decided X” in China is not a Western press statement; it is a behavioural instruction tied to a cadre’s evaluation, promotion prospects, and, eventually, job security.

The Outline itself tags only some indicators as binding and most as expectative. That is the system telling you which lines a cadre will actually be punished against.

The mechanism is real but uneven. Provincial governments game the binding numbers, particularly the environmental ones. Cadre rotation can break term-end accountability before it tightens. Chapters the Party prefers not to enforce get under-resourced rather than rejected. The screen relies on it where it bites.

The horizon is the other thing that makes the FYP serious. The 15th nests inside the 2035 long-range objectives, which were adopted with the 14th FYP in 2021 and which speak in the directional language of “by 2035, China will basically achieve socialist modernization.” Two five-year plans, one strategic horizon. The 16th FYP will be the third leg.

I run my own portfolio with an Income and Growth structure and a five-year minimum horizon on positions, and the FYP-2035 stack tells me the policy direction I am underwriting will not be unpicked at the next reshuffle.

Roughly twenty-five things in the 15th FYP would interest an investor. Four have already changed something on my screen. Here they are, in the order they hit my book.

New productive forces, AI Plus, and a computing build that someone has to actually pay for

The 15th FYP carries one phrase that does more work than any other for an investor: “new productive forces”. This is Beijing’s official language for the strategic shift out of the concrete-and-rebar growth model and into technology-led productivity, advanced manufacturing, and the AI-enabled industrial stack. The state has decided to spend the next five years levelling its economy up the value chain rather than rebuilding the apartment blocks.

AI Plus is the most concrete instruction inside it. The Outline’s Chapters 11 and 14 direct the “full implementation of the AI Plus initiative” and the construction of “a nationally integrated computing power network”. The same chapters state explicitly, in the official English translation, that the state will “support meeting compute demand through multiple mechanisms including government procurement of compute services and compute leasing”. That is industrial policy as a purchase order.

Between an FYP chapter and a corporate result sits the State Council’s implementing notice. In March 2026, the State Council instructed ministries to issue sector plans against the Outline and provincial governments to issue local execution plans. Sector plans become provincial budgets, become procurement, become next year’s loan book at ICBC, become, eventually, the line in China Mobile’s results that says “computing services revenue +11.1%.” I cannot watch every step of the cascade. I can watch the company at the bottom.

The transmission line into my book is China Mobile, the largest of the three Mainland state-owned-enterprise (SOE) telcos and the cleanest example I have of how this works. (For the avoidance of doubt: I own all three; China Mobile is the primary AI Plus position, with China Telecom and China Unicom smaller weights for the same reason.) China Mobile spent RMB 150.9 billion on capex in 2025. It built up to 92.5 EFLOPS of intelligent computing capacity at FP16 (the standard half-precision benchmark for AI compute) and more than 1.5 million standard racks. Computing services revenue grew 11.1% to RMB 89.8 billion. AI services revenue grew 5.3% to RMB 90.8 billion. None of that says “AI Plus mandate” on the income statement; the Chinese state does not insist companies file in the language of state planning. It shows up in the next year’s results as bigger numbers in the sub-segment that does the work.

The cross-check sits next door. China Telecom last year reported industrial digitalisation revenue of RMB 147.3 billion, group capex of RMB 80.4 billion, and 91 EFLOPS of intelligent computing capacity. China Unicom’s 2025 results show the same shape at smaller scale. Three SOEs, comparable direction, comparable cadence. The AI Plus build is industry-wide and Plan-driven, not idiosyncratic to any one name. When I see three SOEs doing the same thing at the same time, I assume someone at the State Council told all three of them to do it. That assumption is rarely wrong.

The demand side is where my auto and sensor exposure earns its place. I covered the supply side in 50,000 Factories: What China’s AI Mandate Means for My Portfolio when MIIT’s January action plan landed. The demand side is the same wave hitting different income statements. BYD shipped over 4.6 million New Energy Vehicles (NEVs) in 2025. Geely crossed CNY 345.2 billion in revenue. Hesai tripled its LiDAR shipments year-on-year on RMB 3 billion of revenue. Those companies do not sell to “new productive forces” as a line item. They sell into the demand wave the FYP frames at the chapter level. That is the difference between a slogan and a screen.

The Beautiful China indicators and a power generator nobody talks about

The Outline carries a table called Box 1. It lists the Plan’s quantitative majors over the next five years and tags each one as binding or expectative. The bound ones are the numbers a provincial cadre will be measured against at term end. The expectative ones are directional aspirations the system will work towards but will not punish on. The ecological cluster is the bit I take most seriously, and the targets are explicit, sourced, and date-stamped: PM2.5 below 27 micrograms per cubic metre by 2030, and non-fossil energy at 25% of primary energy consumption by 2030. For a utility, that is not mood music. It is the policy mechanism above the income statement: permits, dispatch priority, grid connection, local approvals, and the career incentives of the officials who sign them. The longer-horizon directional commitments, peak carbon before 2030 and carbon neutrality by 2060, sit in the 2035 Long-Range Objectives, which is a different document.

If you have not heard of Beijing Jingneng Clean Energy, that is fine. It does not market itself outside Hong Kong investor presentations and does not need to. It is a piece of Beijing’s municipal-SOE clean-power plumbing that happens to be listed. At end-2025 it held 18,365 megawatts of consolidated installed capacity. Renewables were more than 72% of it. It generated 42.45 billion kilowatt-hours over the year. The chapter says the share of non-fossil in primary energy has to reach 25% nationally. Beijing Jingneng moves the share inside its own book in the same direction, faster, and files its disclosures into HKEX where I can read them. The Plan does not need to name Beijing Jingneng; the filing already shows me which way the municipal-SOE plumbing is being pushed.

People-centred urbanisation and the household balance sheet

The Outline’s Chapter 31 is titled “In-Depth Advancement of People-Centred New Urbanisation.” It is one of the more consequential chapters and one of the easier to misread. People-centred urbanisation is not a return to the property boom. It is the explicit policy frame for moving people from villages into county towns, from county towns into mid-tier cities, with formal hukou (the household-registration system that gates access to schools, healthcare, and other public services in a given city) access, formal credit access, and formal social services. It is the chapter that tells you the next five years of Chinese domestic demand are going to come from a different pool of households than the last five. Four names in my book sit on this line.

China State Construction International (CSCI) is the build-side read. Its order book is heavily Modular Integrated Construction (MiC) work, the urban-renewal modality the Outline names directly. MiC is factory-built construction: more industrial process than old property cycle, more repeatable production line than apartment-boom labour stack. That is the version of construction I want exposure to if the post-property build still has to happen.

The banking read starts lower down the household ladder. Agricultural Bank of China (ABC) has the largest county-level branch network of any Chinese bank, founded on the “Three Rurals” mandate (agriculture, rural areas, rural households), already on file with the village and county households the Outline says will be moving up the urbanisation ladder over the next five years. The county economy is where hukou reform, infrastructure spending, and township-enterprise upgrades land first; ABC banks that economy as a matter of original mandate. The hukou line matters because it is where a migrant household starts becoming bankable as an urban household, not just visible in a migration table.

China Merchants Bank (CMB) sits at the other end of the same household migration. It is the leading retail and wealth-management franchise in Mainland China by client assets under management and by private-banking penetration, structured to capture the wealth-management fees, retail credit spread, and asset-management margin as the middle and upper-middle class that the Outline’s domestic-demand chapters describe continues to grow. The Plan does not have to mention either bank for the screen to matter. It describes the household whose financial life each of them is already structured to serve.

Ping An is the overlap case. One leg is the ageing chapter (Chapter 40), where its life and health insurance franchises sit directly on the structural tailwind: 7.6% operating profit growth in 2025 and resilient new business value in life are what the demographic line is supposed to look like inside an income statement, long before it shows up in the obituary pages. The other leg is the wealthier-household thread that lifts CMB: insurance, retirement, and life-stage savings products for a richer customer. One leg would not earn the size; two legs do.

None of these four is a breakout bet. All four are FYP-aligned. The urbanisation chapter does not promise any of them a return. It tells me they are running into a policy wind the state has decided to keep blowing for the next five years.

RMB internationalisation, the Belt and Road, and the part where boring banks earn their keep

Part Seven is mostly about external opening. Chapter 21 on autonomous opening-up. Chapter 23 on the high-quality co-building of the Belt and Road. Chapter 24 on the shared-future framework. This is the chapter cluster that sounds the most like a slogan inventory and the least like a procurement order, which is precisely why most foreign investors give it the lightest reading and miss what it does in practice.

I own Bank of China (BoC) for it. BoC’s 2025 results show continued growth in cross-border RMB settlement and a higher share of operating income from overseas, which is the literal income-statement signature of Chapter 21. I also own China Merchants Port (CMP). Port assets along the Belt and Road Initiative (BRI) corridors are the listed surface of Chapter 23, and CMP’s 2025 overseas terminal throughput and core-port profitability are what a multi-year corridor build is supposed to put on an income statement. Neither name will ever be a multi-bagger. Both have already done what they are meant to do, which is keep delivering operating cashflow while a chapter of the FYP says, on government letterhead, that what they do is to be encouraged. Names such as these fit my Income book.

If "RMB settlement bank with HK depth" and "overseas port operator with corridor exposure" are not the most exciting sentences in this article, that is the point. That is the job I want them to do in the Income book. The AI line can carry the excitement; these names have to carry cash.

Where the FYP got it right and the stocks still lost money

The FYP being decision-useful is not the same as the FYP being a return engine. Two cautions.

Plan-right does not equal stock-right at the sector level. The 14th FYP correctly diagnosed that the property cycle had to deleverage. It said so in writing, and the system acted on it. The Hang Seng Mainland Properties Index then fell from a peak near 4,000 in early 2021 to below 1,000 by 2024. The macro thesis was right. The equity outcome was a 75% drawdown. If you had bought sector exposure on the official narrative alone, you would have lost three quarters of your money being correct. FYP-aligned is the screen. It is not the position.

Geopolitics overrides the FYP at the firm level. The US Department of Commerce added Yangtze Memory Technologies Co. (YMTC, China’s leading memory-chip maker and a 14th FYP self-reliance flagship) to its Entity List in December 2022, and tooling-export controls have continued through 2024. No FYP can write its way around an export-control regime in another sovereign’s jurisdiction. If you cannot live with that risk, do not own these companies. I can, but I size these exposures as options on the self-reliance thesis, not core income positions.

I write my one-line rule with these caveats inside it, not after it. The rule is “FYP-aligned and worth what I am paying,” not “FYP-aligned.” The first half gets the company on the screen. The second half is the rest of the work, industry by industry, company by company.

The screen at work, and the test that comes next

The 15th FYP matters to me only if it moves from language into behaviour, which is the test.

The names in this article are not a recommendation list. They are the screen at work. The screen keeps me out of the wrong fights. It does not win the right ones for me. My actual book is several dozen Mainland and Hong Kong listings deep, and the screen runs across all of them, every quarter, against every important disclosure HKEX puts out. Names that do not sit in the chapters do not make the book, even when they screen cheap on backward-looking metrics. Names that do sit in the chapters still have to show me the translation: procurement, licensing, capex, loan growth, segment revenue, margin quality. Otherwise I have only found a slogan with a ticker attached.

The first real test of the screen lands over late 2026 and 2027, when State Council sector plans and provincial execution plans start translating Outline language into procurement, licensing, and capital allocation. After that come the corporate echoes: SOE annual results, segment disclosures, loan books, chairman letters, and the awkward phrases that have clearly travelled from the Plan into the company.

That is what I will be reading for over the next five years: not whether the slogans repeat, but whether the wording migrates into sector plans, procurement lines, loan books and SOE chairman letters. If it does, the manual is moving from paper into P&L. If it does not, the screen gets marked down.

As of the date of publication, I hold positions in Agricultural Bank of China (HKEX: 1288), Bank of China (HKEX: 3988), Beijing Jingneng Clean Energy (HKEX: 579), BYD Company (HKEX: 1211), China Merchants Bank (HKEX: 3968), China Merchants Port (HKEX: 144), China Mobile (HKEX: 941), China State Construction International (HKEX: 3311), China Telecom (HKEX: 728), China Unicom (HKEX: 762), Geely Automobile Holdings (HKEX: 175), Hesai Group (NASDAQ: HSAI), and Ping An Insurance Group (HKEX: 2318). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

I went to Chongqing in November to understand a city where three of my positions converge. I wrote about that trip in City Mechanics: What Chongqing Taught Me About My Portfolio. After it published, several readers wrote in about one detail I had folded into a single paragraph: the freight train from Chongqing to Budapest, opened the week I was there.

This piece is the answer. It is also, honestly, an example of the kind of detail I like to understand about a business before I invest. Not trains specifically, but how a company actually operates. That kind of understanding is what lets me tell fact from fiction, and hold through volatility. I own BYD. BYD’s first European assembly plant, Szeged, Hungary, EUR 4 billion, 300,000 vehicles a year at full scale, sits 160 kilometres from where those trains stop. The corridor opened on 30 November 2025: biweekly, eleven days, fixed timetable. Six months old.

When I formed my view on BYD’s European build-out, this line did not exist. There is now a logistics input sitting next to labour, tariffs, and local content that was not there before.

The Budapest Line

Chongqing has been running freight trains to Europe since 2011. The inaugural China-Europe Railway Express train left Tuanjie Village for Duisburg on 19 March that year. Most of those trains run on demand, with variable transit times. The Duisburg route went onto a fully fixed bilateral timetable some years back, China’s first. Budapest, opened on 30 November 2025, is the second. Biweekly, eleven days, run by Yuxinou (Chongqing) Logistics. Chongqing rail officials frame the line as a gateway to Slovakia, Austria, and Serbia, not only Hungary.

China shipped 108 TEUs to Hungary by rail in all of 2025. Not 108,000. 108. The corridor exists on paper and on a biweekly timetable; the volume does not yet exist at all. What follows is the work I did to figure out whether the corridor matters. If the volume gap closes, it adds a logistics input I had missed. If it does not, my view on BYD before discovering the train still holds.

Why Budapest specifically. BYD’s EUR 4 billion Szeged plant is in trial production since January 2026, with mass production targeted for Q2 2026. CATL’s 40 GWh Debrecen gigafactory sits 250 kilometres from the rail terminal, with cells already shipping. On the Chinese side, Chongqing’s automotive parts cluster, over 1,000 suppliers with BYD’s own Fudi Blade Battery factory at its centre, is the natural first-tier supplier base for Szeged. I walked the Chongqing supplier cluster in November. The geometry is unusually clean. One supplier cluster, one assembly plant, one fixed-timetable corridor between them.

As one enterprise representative told state media outlet Xinhua:

“Goods destined for Central and Eastern Europe previously required multiple transshipments or sea freight, with large lead-time variability. Now with fixed-schedule trains, we can even plan production schedules and inventory management by the timetable — supply chain resilience is greatly enhanced.”

Eleven days versus thirty-plus by sea. For just-in-time automotive supply chains, where carrying-cost savings on inventory partially offset the freight premium, the lead-time gap is what makes the corridor commercially relevant. Not the price. The timetable.

The 49% Premium

I built out the door-to-door freight economics myself, using current forwarder quotes and the Drewry container index. The short version: rail is expensive. Rail Chongqing-Budapest runs roughly US$9,600 per forty-foot container, end to end. Sea, routed via the Yangtze to a Northern European port and trucked inland to Hungary, comes in at roughly US$6,425. Rail is around 49% above sea on a like-for-like basis. These are post-subsidy quotes. Central per-container support for China-Europe rail wound down through 2023, and what’s left in Chongqing is land, tax, and infrastructure support to operators, not cash per container.

The premium does not vanish on a spreadsheet, but it does not fully reverse there either. Three weeks of vehicle parts sitting on water is working capital tied up; carrying-cost arithmetic recovers something like a tenth of the rail premium, not all of it. The rest is paid for something else: corridor geometry. A fixed-timetable train between one supplier cluster and one assembly plant lets a 300,000-vehicle plant schedule production against the corridor, not the swell on the Indian Ocean. Whether that optionality is worth a forty-plus-percent net premium is the live question, and the answer probably depends on which parts. Heavy, low-value-density components keep going by sea. Time-sensitive battery and powertrain content moves by rail. That is the split I would expect to see, and the one that will show up in volume data over the next eighteen months if the corridor is going to matter.

The Volume That Has to Show Up

Biweekly is a gesture, not yet a supply chain.

If you are scheduling production for a plant targeting 300,000 vehicles a year, two trains a month does not feed an assembly line. The Chongqing-Duisburg corridor took three years and a month from inaugural train to weekly cadence — March 2011 to April 2014. Budapest opened in November 2025. My base case is weekly cadence somewhere in 2028 to 2030, once Szeged is past trial production and the corridor is pulling volume from Chengdu and Chongqing together.

The math is bottom-up. Take Szeged at half nameplate, 150,000 vehicles, as a deliberately conservative short-term steady state. Per vehicle, roughly 600 kg of China-sourced battery and powertrain content: about 450 kg for a Blade Battery pack, 80 kg for an e-axle, 70 kg for motors and ancillaries. Across 150,000 vehicles, divided by about 13 tonnes per dense-cargo TEU, plus a 20% packaging and consumables buffer. That gets to roughly 8,300 TEUs a year of inbound Chinese content into Szeged.

The split by Chinese origin is the part I am least sure of. BYD has not published a supplier-by-origin breakdown. My working assumption is that around 35% of Szeged’s inbound Chinese content originates in Chongqing: the Fudi Blade Battery factory, the adjacent powertrain capacity, and the broader 1,000-supplier cluster across Chongqing and Chengdu make Chongqing the obvious anchor. That puts roughly 2,900 TEUs from Chongqing alone at the 150,000-vehicle steady state. Drop the share to 15% and Chongqing still carries roughly 1,250 TEUs at steady state, an order of magnitude above all of Hungary in 2025; push it to 55% and you get 4,600. I cannot pin the exact share, and I do not need to: Chongqing-rooted suppliers carry the bulk at either end.

All of Hungary took 108 forty-foot containers by rail from China in 2025. At the BYD plant at Szeged steady state, Chongqing alone could send around 2,900 a year, roughly twenty-five times the entire 2025 baseline, from one inland Chinese city. The corridor is six months old. The plant is not yet in mass production. That is the shape worth watching.

What Would Prove Me Wrong

Two ways the corridor stops mattering.

The 35% Chongqing-origin share assumes Szeged sources predominantly from Chongqing-rooted suppliers. If the Chinese content actually flows from Shenzhen, Xi’an, or BYD’s other hubs, the rail link is largely irrelevant to how I read BYD’s European build-out, relevant to someone else’s read, not mine. A supplier-by-origin disclosure from BYD, or freight-manifest sampling at the Budapest terminal, would close it.

The other way is faster than I expect. EU local-content rules and the Brussels push for European battery and component sourcing could pull Szeged’s parts demand into Hungary, Poland, and Czechia faster than the corridor scales. In that scenario the 49% rail premium loses its carrying-cost offset, because the comparison stops being rail-from-Chongqing versus sea-from-Chongqing and becomes rail-from-Chongqing versus a 400-kilometre truck from a Polish supplier. The logistics input I added washes out.

One Input, Not the Thesis

Not the thesis. I did not buy BYD because of trains, and one biweekly freight line does not move the underwriting on a company I have written about at length elsewhere.

What it changes is one input. How BYD’s European build-out actually runs now includes a Chinese rail-logistics line that did not exist before — small today, potentially material at Szeged steady state, contingent on the volume actually showing up. That is a thing to watch, not a thing to act on.

What it changes more durably is how I read China’s manufacturing reach into Europe. A fixed-timetable corridor between an inland Chinese supplier cluster and a Central European assembly plant is what the policy documents have been describing for years. Now there is a train. Whether it carries 108 containers a year or 8,000, whether the volume comes from BYD or someone else, the geometry has shifted. China spent two decades manufacturing on the coast and shipping out of it. Now it builds inland and puts the parts on a timetable.

This is the kind of work I left institutional finance to do, and the reason I publish what I learn. The longer story: Why Cohong Lane? A CFO’s Bet on Independent Investing.

As of the date of publication, I hold positions in BYD Company (HKEX: 1211) and Contemporary Amperex Technology (HKEX: 3750). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

I went to Chongqing to stress-test 3 China EV positions I already hold: BYD, Geely, and XPeng. I’ve written separately about what that trip taught me about my portfolio — but the question that kept forcing itself into my notebook wasn’t about any of them. It was about Huawei. More precisely: how Huawei gets paid by an industry whose private P&L will never tell you. The answer is on file in Hong Kong — not in Huawei’s accounts, but in the procurement ledger of the assembler that builds the cars Huawei sells.

I keep seeing what people call “Huawei cars” on the street — whether I am in Chongqing, Guangzhou, or Shenzhen. More precisely: AITO vehicles displayed and sold inside Huawei’s own retail footprint. In Chongqing I went into one of those stores. The staff lead with HarmonyOS, ADS, and the cockpit experience. But Huawei doesn’t build a single car. SERES — the Chongqing-based assembler — does.

SERES has now reported its FY2025 audited results, filed on HKEX on 30 March 2026: revenue RMB 164.9 billion (~US$22.7 billion), up 13.6% year-on-year; attributable net profit RMB 5.96 billion (~US$0.8 billion), essentially flat. Overall gross margin expanded approximately 3 percentage points to 26.88%. Top line growing, gross margin expanding, attributable profit flat. Standing in that Chongqing store, the question I couldn’t shake was simpler: if the assembler is generating real gross profit on a far larger revenue base, where is the operating leverage going at the net line? The number, in SERES’s procurement lines, is larger than I expected.

What follows is my attempt to answer that with primary filings and careful inference. Huawei is private, so I cannot prove its unit margin from any primary source — the case I can build is one of dependency rather than profit extraction, and dependency is the more important variable. This is how Huawei captures EV economics without building a car, and what it means for the Chinese manufacturers I hold.

What does a “Huawei car” look like on the ground?

On the ground, a “Huawei car” is an AITO vehicle displayed and sold inside Huawei’s own retail footprint, pitched entirely around HarmonyOS, ADS, and the cockpit experience. The assembler — SERES — is never mentioned. The brand on every wall is Huawei. The product being sold is the cabin, not the car.

The Huawei store in Raffles City Chongqing sits on an upper floor overlooking the confluence of the Jialing and Yangtze rivers — premium real estate, premium context. It’s set up less like a showroom and more like a personalised tech consultation. A staff member walked me through the car as if the vehicle itself were almost a formality: HarmonyOS, the ADS stack, the cockpit display, the seat experience, the audio environment. Horsepower was never mentioned. Neither was the drivetrain. Neither, notably, was SERES — the company that actually built the car sitting on the floor. The brand on every wall was Huawei. The pitch was the experience. The car was hardware.

That observation is not proof of anything on its own. But it calibrates how seriously to take what the industry calls the “third living space” — the idea, now mainstream in Chinese premium EV marketing, that the cabin itself is the product: screens, audio, lighting, near-flat bed seats with heating, massage and cooling, voice and gesture controls, and the ambient sense that the car is woven into your daily life. The drivetrain is assumed. The shell is almost incidental.

That framing tells you who holds the structural advantage. Huawei already wins in two living spaces — the home and the pocket. The car is the next one.

The open strategic question — whether HarmonyOS becomes the premium default in China the way CarPlay and Android Auto became defaults in the West — runs underneath everything that follows.

How does Huawei get paid without building a car?

Through procurement, not profit-sharing. In 2022, SERES purchased RMB 5.8 billion (~US$0.8 billion) from Huawei. In 2023, RMB 7.2 billion (~US$1.0 billion). In 2024, RMB 42 billion (~US$5.8 billion) — 30.2% of total purchases. In FY2025, RMB 56.1 billion (~US$7.7 billion) — 33.78% of total purchases, a new high. The FY2025 annual report names the largest supplier only as “IT, communications, and hardware equipment”; Chinese financial media identify it as Huawei. Cumulative procurement from 2022 through FY2025: approximately RMB 131 billion.

The SERES IPO prospectus is explicit:

“Our collaborations with Huawei do not involve any arrangements regarding profit-sharing, which are consistent with industry norm according to the Frost & Sullivan Report.”

The FY2025 annual report does not amend that arrangement. “No profit-sharing” does not mean “no economic transfer”. It means the transfer happens through ordinary operating lines — procurement and, likely, the retail channel. RMB 56 billion flowing to a single supplier tells me exactly who controls SERES’s cost stack — and it isn’t SERES.

To understand what that number actually means, it helps to put it in context. Apple’s dependence on Foxconn at its peak — the period that prompted Apple to spend a decade deliberately diversifying toward Pegatron, Luxshare, and Indian assembly — ran at roughly 25–30% of COGS. SERES is already at 34%, and rising. The difference is that Apple owned the brand and the customer relationship. In the Huawei store in Raffles City, it was impossible to tell who did.

The strongest counter-argument to this framing is that procurement is not profit. RMB 56 billion is top-line revenue for Huawei's automotive business, not a margin number, and I cannot prove Huawei's unit economics on those components and services from any primary filing. Huawei could in principle sell at or near cost, treating SERES as a platform anchor rather than a profit centre. I doubt it: Huawei's 2024 annual report disclosed that its intelligent automotive solutions unit turned a profit for the first time, and software-and-cockpit revenue carries software-margin economics, not commodity-component economics. What I can prove is the dependency, and dependency is the more important variable. Whether Huawei is currently extracting profit or simply locking in the platform position, the result for SERES is the same: a third of every yuan it spends on inputs goes to one supplier, and that share is climbing.

SERES’s selling expenses ran RMB 24.2 billion (~US$3.3 billion) in FY2025 — 14.7% of revenue, up from 13.2% in 2024. Consistent with what you see on the ground: premium stores, premium service, and a sales story led by the platform brand, not the assembler. SERES still posted a 3.6% attributable net margin in FY2025 (4.1% in 2024) — proof the assembler can be profitable in the Huawei era. But profitable with a cost structure where Huawei is the largest single supplier, where the share of inputs going to that supplier rose by another 4 percentage points in the most recent year, and where revenue grew 13.6% while attributable profit did not move at all.

What happens when Huawei replicates the platform?

Huawei is already doing it, and the cumulative volume across the Harmony Intelligent Mobility Alliance (HIMA) — Huawei’s smart car joint-venture framework through which it supplies ADS, HarmonyOS, and hardware to OEM partners without taking an assembly stake — settles the question. HIMA delivered 112,700 vehicles in Q1 2026 (+41.9% YoY), bringing cumulative deliveries to approximately 1.35 million units by March 2026. The AITO M9 alone has now passed 280,000 cumulative deliveries and outsold BMW X5, X7, Mercedes GLE and GLS in China on a cumulative basis. The AITO M6 took 60,000 pre-orders in the first 24 hours of pre-sale on 23 March 2026. The platform isn’t trying to scale. It has scaled.

The share split tells the same story. Five brands now sell across 4 assemblers: AITO at SERES, LUXEED at Chery, STELATO at BAIC, MAEXTRO at JAC, SHANGJIE at SAIC. AITO’s share of HIMA fell from above 85% in 2024 to roughly 63% by November 2025 as new brands joined; it has since recovered to roughly 69–76% in Q1 2026 as the non-AITO ramp ran slower than expected.

The structural implication is not “Huawei wins”. It’s that platform scale changes OEM bargaining power over time. SERES can be profitable and still become more dependent — and those two things are not in contradiction.

SERES has responded on 3 fronts — none of them the moves of a comfortable partner. They are the moves of a company managing a dependency it knows is structural.

Trademark reclaim. In July 2024, SERES paid RMB 2.5 billion (~US$0.3 billion) to buy 919 AITO trademarks back from Huawei. A company paying to own the customer identity it built in partnership tells you something unambiguous about who the brand equity originally belonged to.

Technology stake. SERES invested RMB 11.5 billion (~US$1.6 billion) for what was originally a 10% stake in Huawei’s Yinwang autonomous driving unit, now diluted to 9.36% as Huawei admitted other partners. The FY2025 annual report recognised approximately RMB 170 million of equity-method income from this stake — accretive at the income line, but a 1.5% return on capital implies the investment is a strategic lock-in, not a financial one. Changan’s AVATR made the same move independently at the same percentage. This is becoming standard practice for HIMA partners who want a seat at the technology table rather than just a supply agreement.

Capital raise. SERES listed in Hong Kong on 5 November 2025, raising approximately US$1.7 billion in fresh capital.

The platform toll and my portfolio

The thesis is simple: Huawei has inserted itself into the value chain, the customer relationship, and the standard-setting layer of Chinese premium EVs — without taking assembly risk.

I didn’t go to Chongqing to find a new stock. I went to stress-test positions I already hold — and Huawei is now inside that underwriting.

The risk isn’t that BYD, Geely, or XPeng can’t build EVs. It’s that Huawei is redefining what Chinese consumers are paying for in the premium segment. Not the drivetrain. The cabin.

Two mechanisms are at work, and they break differently. For HIMA partners — SERES, Chery, BAIC, JAC, SAIC — the toll is procurement, visible at SERES’s 33.78%. For the three I hold — BYD, Geely, XPeng — the risk is competitive displacement: if HarmonyOS becomes the premium default, their in-house cabin stacks become an expense rather than a moat.

BYD has the scale to respond — but only if Denza and YangWang can match the Huawei experience baseline, not just approach it. Geely’s Zeekr is betting in the opposite direction: building its own independent cabin stack (ZEEKR AI OS, Qualcomm Snapdragon 8295) rather than paying the Huawei platform toll. The risk isn’t dependency — it’s irrelevance. If Chinese consumers decide HarmonyOS is the definitive premium standard, Zeekr’s in-house software investment becomes a sunk cost. XPeng built its own stack as a moat; that same stack becomes an expense if HIMA reaches parity fast enough.

I’ll be direct about the uncertainty here: I don’t know which of these resolves first, or how fast. But these are the 3 data points that would change my view:

1. The experience gap. The market is already bifurcating along integration lines. My base case is that the gap widens through 2026 as HIMA launches new models at pace. The break condition for my OEM positions: BYD (Denza or YangWang), Geely (Zeekr), or XPeng demonstrably matching HIMA cockpit benchmarks in independent comparisons by H2 2026. Until then, Huawei is setting the floor.

2. HIMA’s spread. AITO fell from 85%+ of HIMA volume to roughly 63% in November 2025, then recovered to 69–76% in Q1 2026. If it falls below 50% on a sustained basis, Huawei no longer needs SERES to anchor the platform — and SERES loses whatever negotiating leverage it currently holds. If it stabilises above 60%, the relationship is maturing into something bilateral enough to be manageable. The current data point sits in the second camp, but Q1 monthly figures swing widely.

3. The procurement mirror. 33.78% and rising at SERES. As of late April 2026, none of the FY2025 annual reports filed by Changan, BAIC BluePark, JAC, or SAIC show Huawei or Yinwang as a top-five supplier or named related-party transaction at the parent-group level — most likely because the brand-level volumes are still too small to register in parent-group COGS. AVATR has filed for a Hong Kong IPO at a reported US$4.6 billion valuation; when it lists, its prospectus and first annual filing will be the next clean read. Three HIMA partners showing 25%+ procurement dependency would be the clearest possible signal that Huawei has restructured the cost stack of the Chinese premium segment — invisibly, without building a single car.

I hold my positions. But I’m now measuring each of them against one question: can they compete on the thing Huawei is actually selling? SERES’s procurement lines already show what the platform toll costs. The next 18 months will tell me which other OEMs have been paying it all along.

Cohong Lane is where I publish the work I do on the China positions I actually hold — written from Hong Kong, sourced from HKEX filings, calibrated against what I see in the cities where these companies operate. The next piece from the Chongqing trip is I Own BYD. Chongqing’s 11-Day Train Changed My Math. — on the rail corridor to BYD’s Szeged plant that I had not modelled before visiting.

As of the date of publication, I hold positions in BYD (HKEX: 1211), Geely Automobile (HKEX: 0175), and XPeng (HKEX: 9868). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

In a car from Chongqing East station to the hotel, I spotted a vehicle I had never seen before. Low, sculpted, with lines that belonged in a concept video rather than on a road. The badge read AVATR — a joint venture between Changan Automobile, Chongqing’s anchor state-owned automaker, CATL, and Huawei. Three of China’s most consequential industrial players, converging in a single vehicle, designed and assembled in a city roughly 2,000 kilometres from the nearest major seaport.

I hold BYD, CATL, and China Mobile. All three have operations here: BYD’s Blade Battery plant, CATL’s first “factory-in-factory” production line, one of China Mobile’s 8 national data centre hub nodes. The mountain topography over the Yangtze is genuinely dramatic, but I did not come for the scenery. I came to work out what that overlap in my own book actually meant.

What Role Does Chongqing Play in China’s Economic Plan?

My working view after the trip: Chongqing’s logistics stack is a potential structural edge for BYD’s and CATL’s European supply chains that was not in my model. The rest of this piece is the case, and the one signal that would falsify it.

Chongqing is one of only 4 direct-administered municipalities (直辖市) in China — alongside Beijing, Shanghai, and Tianjin. That status means it retains a larger share of tax revenues, issues its own municipal bonds, and competes directly for central government capital without provincial intermediation. When Beijing allocates RMB 800 billion (~US$110 billion) in ultra-long special treasury bonds for infrastructure in 2026, Chongqing sits at the same table as Shanghai.

“Boost the development capacity of the Chengdu-Chongqing economic zone.” — CPC Central Committee 15th Five-Year Plan Recommendations, Section 29 (October 2025)

The policy stack underneath is what matters: direct municipality status, the Liangjiang New Area, a Pilot Free Trade Zone handling roughly 70% of the municipality’s foreign trade across just 0.1% of its land, and the China-Singapore Demonstration Initiative — a government-to-government project giving Chongqing privileged access to Singapore’s capital networks and ASEAN markets. No peer inland city has this many stacked in one place. Not Chengdu, not Wuhan, not Xi’an.

The Numbers That Matter — and Where the City Is Fragile

Chongqing’s 2025 GDP reached RMB 3.376 trillion (~US$485 billion), growing 5.3% against a 5.0% national average — enough, for the first time, to overtake Liaoning, the old industrial heart of the northeast. The city missed its own 6% target by 0.7 percentage points, and has lowered the 2026 target to “above 5%”. The automotive industry kept doing most of the lifting: smart-connected NEV value-added rose 13.4% on the year, and the city’s NEV output has stepped up from roughly 43,000 in 2020 to 1.296 million in 2025, reclaiming the title of China’s top auto-producing city.

Three numbers cut against the headline.

First, the NEV growth rate has already halved. The 90.5% print in 2024 dropped to 36% by 2025, and I expect Chongqing will converge toward the national rate within 2 to 3 years.

Second, the concentration is brutal. The automotive industry alone contributed two-thirds of Chongqing’s entire industrial expansion in 2024. Two-thirds. From one sector.

Third, the population is shrinking. A net loss of 92,000 people in 2024, against an economy that still grew 5.7%. If your China model starts with demographics, Chongqing is the city that breaks it — the growth is coming from productivity and capital upgrading, not headcount, and that is a harder trick to repeat than a demographic tailwind.

Taken together: if automotive growth decelerates to 10–15% before the named replacement sectors — electronics, advanced materials, AI, biomedicine — reach scale, Chongqing faces a growth gap. Not a crisis for the city, but a reason to read every subsequent Chongqing data release more carefully than I used to.

Is the Advantage Structural, or Just Subsidies?

Every major Chinese city offers subsidies, land deals, and tax breaks to attract manufacturers. By CSIS’s Red Ink estimate (Scott Kennedy, 2024), China’s EV industry received roughly US$230 billion in state support from 2009 to 2023, with local governments accounting for about 80% of industrial policies. BYD’s largest megafactory is in Zhengzhou, not Chongqing. CATL’s main cell production hubs are in eastern China.

The answer is logistics — the kind that cannot be replicated by writing a bigger cheque.

Chongqing is the only city in China to hold all five categories of national logistics hub designation simultaneously — port, land-port, airport, production-service, and trade-service. A manufacturer here can route goods east down the Yangtze via Guoyuan Port, west to Europe by China-Europe Railway Express, south to ASEAN via the New International Land-Sea Trade Corridor, or by air through Jiangbei Airport. Four export corridors from a single inland hub. Xi’an moves more CRE rail volume, but Xi’an does not have the Yangtze. Chengdu shares the western rail corridor, but Chengdu does not have the river port. No peer city replicates the combination.

The detail that made me sit up: while I was in Chongqing last November, Xinhua’s Chongqing wire reported (30 November 2025) that China had launched its second fixed-schedule freight rail service to Europe — from Chongqing to Budapest, Hungary, running biweekly in approximately 11 days. The first route, to Duisburg in Germany, has been running since 2011. Why does Budapest matter? Because BYD is building a €4 billion plant in Szeged, Hungary — 160 kilometres from Budapest — its first European passenger-car factory, targeting 300,000 EVs a year at full capacity, with pilot production in Q1 2026. CATL’s Debrecen gigafactory — a €7.34 billion plant, initial capacity 40 GWh with cell production from early 2026 and designed for 100 GWh at full build-out — is 250 kilometres away. When Chongqing’s 1,000-plus automotive parts suppliers need to ship components to those European assembly lines, the timetable now exists. 11 days by rail versus 30-plus by sea makes rail competitive for just-in-time supply chains. For the first time, an inland Chinese city has a direct, timetabled logistics link to the Central European EV cluster.

Ground Truth — What You Won’t Read Elsewhere

To understand Chongqing, you have to leave it.

One morning we drove 90 minutes southwest to the Dazu Rock Carvings. The carvings are extraordinary — a UNESCO site, 50,000 sculptures carved into cliff faces since the 7th century. But it was the drive that changed how I think about the data.

Within 40 minutes of leaving the urban core you are in a different economy. The road narrows. The buildings are older, lower, unfinished. This is the other Chongqing: 82,400 square kilometres of mountain terrain where the main urban district produces 78% of GDP. The per capita income gap between urban residents (RMB 49,778, ~US$6,800) and rural residents (RMB 22,221, ~US$3,000) is more than 2-to-1. An investor assuming the headline applies evenly is making an error I nearly made myself.

Restaurants were packed — not the performative busy of a new development, but the organic busy of a consumer economy actually spending. Wholesale and retail grew 9.5% in 2024. Accommodation and catering grew 7.3%. You feel these numbers in the queue for a hotpot table at 9pm on a Tuesday, not in a spreadsheet. (If you visit: skip the tourist hotpot and try 烤匠麻辣烤鱼. It is a Chengdu-born chain — and their sea bass, buried under a small mountain of dried chillies and green Sichuan peppercorns, is the best thing I ate in China in 2025. 不吃火锅，就吃烤匠.)

One evening walking through Chongqing’s malls is not statistically significant. I know that. But what on-the-ground observation gives you is not data — it is a filter for obvious nonsense in the data. It does not prove a bearish report wrong. But it tells me to ask better questions about which consumers, where.

What Does This Mean for My Portfolio?

I came to Chongqing to understand a city. Two of my positions got sharper. One did not.

BYD operates a dedicated Blade Battery factory here through its Fudi subsidiary: 8 production lines, 20 GWh annual capacity, running at or near full utilisation since 2020. What I had not connected was the logistics. The Budapest rail link means BYD can ship battery components to Szeged in 11 days without routing through Shanghai. For a company building out its first European passenger-car production base targeting 300,000 EVs a year, that is a potential structural cost advantage — contingent on the Budapest schedule going weekly — that was not in my model. It is now.

CATL entered Chongqing in June 2025 with a factory-in-factory model: 2 battery pack lines physically inside the SERES Super Factory in Liangjiang, a 5-year exclusivity agreement for all AITO vehicles to use CATL batteries, planned annual output value of RMB 7 billion (~US$960 million). I knew the concept on paper; being in the city where it runs forced me to focus on what it means — switching costs that are physical and contractual, not just commercial. Beyond that, the Chongqing presence did not change my view of the position; I hold CATL on the global platform thesis, not on a single-site read-across.

China Mobile also runs a Chongqing node — one of 8 national “Eastern Data, Western Computing” hubs. Nothing on the ground changed my view of the position; I hold it on the telco thesis, not on a Chongqing read-across.

The Signal I Am Watching

In that first car ride from Chongqing East, I thought I had spotted an unfamiliar vehicle. What I had actually spotted was my own blind spot. The AVATR was the whole city in miniature: Changan, CATL, Huawei, capital, policy, manufacturing, all compressed into one thing moving down the road.

The question for me now is whether Chongqing's logistics stack can turn that industrial density into a durable edge for my BYD and CATL positions, rather than just an impressive story. The Budapest rail schedule is the test. If it goes weekly by end-2026, I will treat that first sighting as an early clue I was lucky enough to notice. If it does not, the car was still real, but the edge I thought I saw behind it was smaller than I believed. And the deeper question, which I unpack separately in Why Huawei Now Sits Inside My China EV Underwriting, is how much of that value is ultimately being captured not by the assembler, but by the platform layers sitting inside the same machine.

As of the date of publication, I hold positions in BYD (HKEX: 1211), CATL (HKEX: 3750), and China Mobile (HKEX: 0941). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

In April 2025, I was in Budapest, meant to be on holiday, and instead spent an indecent amount of time staring at falling prices on my screen. I felt the drawdown in the only way that matters: as real money, in my own account, disappearing by six figures while every instinct in my body suggested that doing something, anything, would feel better.

Budapest is a beautiful city, which is not especially helpful when tariffs hit. More important than the trades I did or did not make was the thing going on in my own head: I felt fear, I felt regret, and I felt the very human urge to convert uncertainty into certainty, even at a bad price.

The problem is that my instincts do not distinguish particularly well between actual danger and falling share prices. Falling share prices are not automatically danger. They are information, and the job is to work out what kind. The market was not telling me my thesis was wrong. It was telling me sentiment had turned.

I did not sell, though, and the reason was not that I am some sort of monk in a linen shirt who has transcended loss aversion. I am not. The reason was simpler and less glamorous: I knew what I owned, I knew why I owned it, and I knew what I thought it was worth.

What is volatility, and what is it not?

Howard Marks made the distinction plainly in “Risk Revisited Again“: what investors actually fear is not price movement but the possibility of permanent loss. Volatility became the academic proxy because it was quantifiable, but it was always the wrong measure.

I agree with Marks — but I want to take the distinction one step further, because in my own portfolio the useful question is not what volatility is but when it becomes dangerous. The answer, as far as I can tell, is: through only two mechanisms. Either my structure forces me to sell, or my psychology does. Permanent loss itself is narrower than most drawdowns suggest — fraud, obsolescence, terminal competitive decline, or regulatory destruction. Four ways a business becomes permanently worth less. If none of them is in play, the price is moving without the business moving, and moving prices are noise, however unpleasant.

The first mechanism is structural. This is where a lot of institutional pain comes from, and it is also why private capital with the right design has a real edge. If you are running leverage, a drawdown can become a margin call. If you are managing outside money, a drawdown can become a redemption. If you are judged quarterly on relative performance, a temporary decline can become a career problem long before it becomes an investment problem. Time horizon is not a decorative preference in investing. It is often the whole game.

That is why my own portfolio is built to eliminate forced selling. My living expenses are covered by income-generating assets. I do not use leverage. I do not manage external capital. That removes the first channel almost entirely.

The second mechanism is psychological, and this is the harder one because it follows you around. You can design away leverage. You cannot design away being human. If I sell simply because I cannot bear the discomfort of seeing prices down another 10%, even though my underlying thesis is intact, then I have voluntarily converted volatility into permanent loss. Nobody forced me. I did it to myself.

Part of what makes the psychological channel so difficult is that the fear feels rational. A falling price appears to carry information — the market is selling, so it must know something you do not. That instinct is not stupidity; it is pattern recognition misfiring. Price movement is not the same as informational superiority. When the market sells, it tells you about the constraints of the people selling — not about the business.

What actually constitutes permanent loss?

In my experience, most drawdowns have the same basic explanation: the market is selling off for reasons that are only loosely connected to the underlying business. I don’t buy stocks — I buy tiny pieces of what I believe to be great companies, at prices below my estimate of intrinsic value. When prices fall but the business hasn’t changed, that’s not a warning. That’s a price decline worth sitting through, not running from.

When a position I own is in a genuine drawdown, I run four questions before I touch anything. Has management integrity changed — because I have been wrong about management before, and it is usually the first thing I am too optimistic about. Has the industry structure worsened, not cyclically, but in a way that permanently favours someone else. Has regulation impaired the model — not inconvenienced it, impaired it. Has the balance sheet become a real problem, or am I just watching a line item worry me. If none of the four has shifted, I am almost certainly looking at volatility, not impairment.

Why does homework create holding power?

Deep research creates holding power because conviction anchored in business reality can survive a falling share price, whereas conviction anchored in price action cannot. If I understand the industry, the competitive position, and a sensible fair value range, then a drawdown changes my emotional state, not my estimate of intrinsic value.

This is the bit that gets romanticised in investing books and then brutalised by actual markets. People say “just hold through volatility” as if that was a personality trait. Like being tall. It is not.

Holding power is downstream of preparation.

If I have done the work properly, a 30% decline tells me the market’s mood has changed. It does not automatically tell me the business has deteriorated by 30%. Those are wildly different statements, but markets present them in the same font, which is unhelpful. The screen says the bid is lower. Fine. The screen does not tell me whether the bid is rational.

That, to me, is the real reason most investors cannot hold through a continued decline: they do not truly understand what they own. If your conviction is anchored in price action, a further decline dissolves it. If it is anchored in the business, the decline is just the price changing, which is a different thing entirely.

I should be honest about the obvious objection: the diagnostic is only as good as the analyst running it. If I have spent months building a thesis, I am not a neutral examiner of the evidence — I am a motivated one. The risk is not that I ignore the checklist but that confirmation bias shapes what I see when I run it. I do not have a risk committee to overrule me. What I have is the discipline to name, in advance, the specific evidence that would change my mind — and to write it down before the drawdown arrives, when my judgement is not yet compromised by the desire to be right. It is not a guarantee against self-deception, but it is the best structural defence I have found so far.

The time to do the work is in calm weather — deciding what I want to own, at what price, in what size. A GTC limit order is exactly that: a standing instruction placed before the storm that fires automatically when the price arrives, without requiring my emotional state at 3am to agree. When the sell-off arrives, the calm-weather version of you is already at the desk.

Familiarity, Not Heroics

Budapest tested whether that preparation held. The episode mattered because I did not just endure it; I used it as deliberate psychological training. The useful skill in a sell-off is not emotional numbness but the ability to observe fear, regret, and the urge to act without automatically obeying them.

The Budapest drawdown felt awful. I did not enjoy it. I was not floating above it in enlightened detachment, whispering about intrinsic value while the minibar mocked me from across the room.

What I did differently was pay attention. Most investors respond to a sell-off in one of two ways. They either stop looking entirely, or they stare at the screen in a state of rising panic and let each downtick rewrite their beliefs. I tried to do neither.

I watched the losses accumulate. I named what I was feeling: fear, regret, frustration, the desire for relief. And then I separated those feelings from the actual state of the businesses I owned. That gap — between what I felt and what I knew — was the whole exercise. My feelings were screaming catastrophe. My research was saying, in effect, “the market is upset; the businesses are still the businesses.”

Budapest was not my first sell-off. The first time a position of mine dropped 30% I spent three weeks second-guessing every decision that led to the buy. By Budapest I spent a lot less time doing that. The gap is not willpower. It is evidence. My subconscious has seen enough of these chapters to know how they usually end.

I want to be honest about this: it is genuinely difficult. Anyone who tells you they feel nothing when watching large drawdowns accumulate on real money — not paper money, not a simulation, and with no salary arriving at the end of the month to soften the edges — is either exaggerating or has not yet been tested with enough capital at stake. The goal is not to feel nothing. The goal is to feel it, understand it, and choose not to act on it. That, to me, is the real edge of lived experience.

Not heroics. Familiarity. The first major drawdown feels like an emergency. By the fifth, it starts to feel more like weather.

Where I Paid the Admission Price Most Recently

China equities are where the admission price is highest — and where confusing it with risk is most expensive. Sentiment swings are amplified by policy headlines, geopolitical friction, and Western media narratives that default to catastrophe. If you conflate that volatility with risk, you will never hold through the drawdowns that create the best entry points.

In April 2026, when the Iran headlines hit and the Hang Seng sold off, I noticed the familiar sequence almost immediately. The screen made everything feel more urgent than the facts justified. The impulse was the same as in Budapest: do something, reduce the discomfort, convert uncertainty into action.

So I ran the checklist before I let myself touch the order ticket. Had anything changed about the businesses I was watching? Had the competitive position worsened? Had the policy structure shifted? The answers were no, no, and no. What had changed was sentiment.

That distinction matters because the psychological danger in a sell-off is not fear by itself. It is fear smuggling itself into the analysis and pretending to be new information. Once I could see that happening, the job was simple, if not pleasant: slow down, go back to the work, and act only if the gap between price and value had genuinely widened.

That was the setup with Kingdee. I had done the homework months earlier, when I traced how Beijing’s binding factory-automation KPIs were creating a mandate-backed upgrade cycle for enterprise software. The thesis was ready. The fair value range was set. When the Iran sell-off pushed the price into that range, I bought. Same with Hesai — the production wins were already in the work, the certification path was already in the work, and the question in front of me was not whether the headlines felt alarming but whether the business had changed. It had not.

The important part, though, is not that I bought them. It is that the decision did not come from adrenaline. It came from homework done in calm weather, checked again under pressure, and executed only after I had separated what I felt from what I knew. That is the admission price in practice.

If you’re new to Cohong Lane, that is the whole point of the publication: I invest my own capital from Hong Kong and publish the process, the pressure, and the mistakes in public so readers can inspect the reasoning, not just the conclusion.

I have sat through drawdowns that lasted quarters, not days — the 2022 China panic ground on for quarters while every Western headline declared the market uninvestable. I ran the same diagnostic then. I held. The framework held.

Volatility is the admission price. Risk is what happens if I have built a portfolio, or a mind, that cannot afford to pay it.

As of the date of publication, I hold positions in Hang Seng Tech ETF (Xetra: H4ZX), Kingdee International Software Group (HKEX: 0268), and Hesai Group (NASDAQ: HSAI). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.

BYD ended 2025 by telling shareholders that China is no longer enough

I own BYD, and this piece is a check on whether the reason I own it still holds.

I did not buy BYD because I thought it would post a neat set of annual results in one particular year. I bought it because I thought it might become something much rarer: a globally localised, cycle-resilient, structurally profitable auto-industrial platform with the scale, staying power, and foreign industrial presence that make the Toyota comparison worth taking seriously. It is the same lens I use across the rest of my portfolio, which I laid out in How I Invest My Own Capital.

BYD sold 4.60 million new-energy vehicles in 2025, exported more than 1 million of them, and lifted revenue to just over RMB 804 billion. On the surface, that still looks like a company scaling.

Underneath it, the year tightened. Gross margin fell to 17.74 percent from 19.44 percent. Net profit fell 18.97 percent to RMB 32.6 billion. Operating cash flow dropped from RMB 133.5 billion to RMB 59.1 billion. Capex jumped to RMB 156.8 billion. Borrowings rose from RMB 28.6 billion to RMB 113.4 billion.

The Toyota comparison demands more than scale. It does not mean BYD gets huge and keeps shipping cars out of China. It means BYD becomes the sort of company that can build at scale across regions, make decent money through a cycle, localise production when politics harden, absorb tariffs and price wars without breaking the balance sheet, and keep compounding because the industrial system underneath it is real.

What management is saying is revealing

Management is clear on one point: the domestic market is brutal. BYD's 2025 annual report describes domestic competition as having entered a "fever pitch" and a brutal "knockout stage" — unusually direct language for a corporate filing. Beijing is signalling the same thing: regulators have moved to curb destructive price competition and below-cost selling in autos. That tells me the company knows the home market is now a stress test, not a comfortable source of compounding.

Second, overseas is not just a volume story. It is an economics story. Overseas revenue rose 40 percent to RMB 310.7 billion while China revenue fell 11.2 percent to RMB 493.2 billion. Overseas now accounts for roughly 38.7 percent of group revenue, up from roughly 28.6 percent a year earlier. Management also confirmed that overseas profitability is structurally stronger.

Those two facts together are enough to tell me the direction is right. The magnitude is the hypothesis I am watching.

I want to be careful with that.

Management commentary is not segment disclosure. BYD does not yet report overseas as a separate segment, which means I cannot verify the full economics directly from the filing. What I can say is that the revenue mix shift is real, the directional commentary is consistent, and the hypothesis makes industrial sense in markets where BYD is not fighting a domestic price war. The first clean test will be whether BYD breaks out an overseas segment in the 2026 interim results. If that happens, the hypothesis becomes a fact or a disappointment. Until then, it is the part of the thesis I watch most carefully.

If that profitability gap holds as the business scales and localises, overseas is not just the faster-growing segment. It becomes the part of BYD that could simultaneously be more profitable and more durable — insulated from domestic pricing dynamics by geography and brand positioning.

That leaves China as the base case: still dominant, still under pressure. And overseas as the part of the thesis that has to prove itself.

You could reasonably argue that BYD does not need to pass this test at all — that a company selling nearly five million vehicles a year with vertical integration and deep cost advantages can compound perfectly well as a domestic champion that exports on the side. That is a defensible case, and it may turn out to be the right one. But it is not the case I am underwriting. What I bought was the potential for something rarer: a company that can build durable economics in foreign markets, not just ship volume into them. If BYD turns out to be only a domestic champion, it will still be a good company. It will not be what I paid for.

Third, management is signalling that the build-out will take precedence over distributions. The proposed 2025 dividend was RMB 0.358 a share, down from RMB 3.974 in 2024, and management tied the cut to operating cash flow and future development needs. As a long-term shareholder, I think that is the right call. This phase has to be funded, not wished into existence.

What management is doing matters more than what it is saying

Global ambition is cheap. Industrial proof is not.

What I look for when I read a chairman’s letter is the gap between what management emphasises and what the numbers actually show. Wang Chuanfu’s language — “fever pitch”, “knockout stage” — is significant not because it is alarming, but because it is honest. It is a chairman telling shareholders that the home market no longer offers a comfortable base from which to fund overseas expansion. That forces you to ask a different question: if domestic economics weaken further, can the overseas business grow fast enough and profitably enough to absorb the pressure? That question is what this piece is really about.

BYD is starting to supply the industrial proof: trial production commenced at the Szeged, Hungary plant in January 2026, with full series production scheduled for Q2 2026 — the first locally manufactured European BYD. The Brazil plant is operational. Cambodia is in progress. Turkey’s 150,000-unit plant is scheduled to open by end-2026, and Spain is under active evaluation as a third European site, favoured for its clean energy infrastructure and manufacturing cost base. The company now runs eight roll-on/roll-off vessels and has established a European headquarters in Hungary.

That is not proof on its own. It is a footprint. Anyone can export. The Toyota test is whether exports turn into factories, suppliers, service networks, and local political staying power. That is a harder path than SAIC’s MG-style push into Europe, and more self-built than Geely’s ability to lean on Volvo’s foreign industrial base. What makes BYD’s path distinctive — and more fragile — is that it is building the industrial infrastructure itself, from shipping to charging to assembly, without an acquired brand to backstop the learning curve.

That is also why capex matters. BYD spent RMB 156.8 billion in 2025 on overseas plants, proprietary shipping, charging infrastructure, energy storage, and R&D simultaneously. The bear case is that management is trying to build five moats at once and cannot fund them all without the domestic cash engine running at full pressure. The bull case is that this is what a real moat often looks like while it is being constructed.

The 2026 test for the Hungary plant is not whether it produces cars. Trial production has already started.

The real test is whether it runs at a utilisation rate and cost structure that can compete with Chinese production after European labour and logistics costs are taken into account. Underutilised overseas plants drag margins. If Hungary starts reporting at meaningful capacity — initial design is 150,000 units, scalable to 300,000 — before the domestic business stabilises, the thesis gains a genuine second leg.

For me, localisation does not mean putting pins on a map. It means local suppliers, after-sales capability, political acceptability, demand that holds up without brute-force discounting, and eventually economics good enough to survive tariffs or policy tightening.

The strategic direction only matters if BYD can export a platform, not just cars

BYD’s technology roadmap matters only if it helps the company win outside China — in markets with weaker charging infrastructure and harder politics.

Fifth-generation DM and longer-range PHEVs matter because large parts of the world still do not have the charging infrastructure that makes pure EV ownership easy. Management is pushing larger-battery PHEVs with up to 210km of pure-electric range and more than 2,100km of combined range. That is aimed at markets where charging is patchy and drivers still need ICE-like convenience. It is a product designed for the world as it actually exists, not the world as EV evangelists wish it did.

The individual technologies — Super e-Platform, flash charging, the second-generation Blade Battery, Gods Eye — are not the point. Management is bundling them: charging speed, battery range and durability, driver intelligence, local assembly, and shipping control, packaged as a single offer that is harder to replicate than any one feature. If you are a competing OEM, you do not get to pick which part to match. I explored a related policy-to-cashflow angle in 50,000 Factories: What China’s AI Mandate Means for My Portfolio, where BYD also appears as part of the EV manufacturing and automation build-out.

One reason BYD might become more resilient than a normal carmaker is that it may not end up being only a carmaker. The company delivered more than 60GWh globally in 2025, ranked first worldwide in energy storage system shipments, and won the 12.5GWh Saudi Electricity contract. That is enough to tell me energy storage is not a side business. What I still cannot see clearly is the economics. Because storage sits inside the broader auto segment disclosure, I cannot tell whether it is already a margin enhancer, a temporary drag while the business scales, or simply too small to matter yet. Management has given me enough to be intrigued and not enough to underwrite. That is the real gap.

Premiumisation matters too, but I want to be disciplined about it. Yangwang, DENZA, and FANGCHENGBAO together approached 400,000 units in 2025 and more than doubled. That is encouraging. It is not yet the same as saying BYD has become a premium company. It has become a company that also sells some premium cars, which is a different sentence.

What 2025 actually changed for me

The annual report did not kill the thesis. It raised the hurdle.

Before this report, I could still tell myself a simpler story: China scale first, exports later, and operating leverage eventually doing the rest. I do not think that is the story any more.

The domestic business weakened, cash flow deteriorated, capex surged, and borrowings nearly quadrupled. Those numbers do not decide the thesis on their own. But they leave management with far less room for strategic error.

I remain invested because BYD has already proved enough to keep the thesis alive. But from here, the next leg has to be earned.

How I am positioned — and what would change that

BYD currently represents approximately 2 percent of my growth portfolio, with additional indirect exposure via the Hang Seng Tech ETF. The combined position is meaningful but not yet sized to reflect full conviction — which is deliberate.

My current approach is to use cash-secured short puts to build toward the position gradually, targeting a lower entry point if the stock comes in to a price that reflects more of the execution risk now visible in the 2025 numbers. If management continues to execute as I expect — overseas volume growing, Hungary demonstrating viable localised economics, and cash flow recovering from what looks like a trough year — I would be comfortable growing the combined growth portfolio stake toward 5 percent over time.

The sizing logic is straightforward: the thesis is intact but unproven at the critical overseas step. A 2 percent position reflects a live hypothesis. A 5 percent position would reflect a thesis entering confirmation. I am not going to 5 percent until I can see the overseas economics in the numbers, not just in management commentary.

The mechanism — short puts rather than direct purchase — is not about being clever. It is about being paid to wait at a price I would genuinely be happy to own more stock at. If the puts expire worthless, I collect premium while the thesis develops. If I get assigned, I own more BYD at a price that builds a larger margin of safety into the position. Either outcome works for me.

If Hungary is approaching 100,000 units of annualised production before Q3 2026, or if BYD breaks out energy storage as a reportable segment, I would treat either as a signal to build the position faster.

What would make me reduce is more specific: overseas revenue share continuing to rise while operating cash flow stays depressed. Revenue mix shifting while cash does not follow is not a healthy transition. It is a sign the overseas business is absorbing costs faster than it is generating returns. At that point, patience stops being a thesis and starts being a habit.

What would make me believe more — and what would kill the thesis

I do not need BYD to look perfect in 2026 or 2027. I need the future path to become more legible.

In practical terms, I want to see three things in the numbers: overseas revenue per vehicle holding up as volume scales, at least one overseas plant moving from symbolic output to economically meaningful utilisation, and operating cash flow recovering without another stretch in supplier payables.

The kill condition is not that China stays difficult for another year. China probably will stay difficult.

The kill condition is that BYD keeps growing abroad and still fails to become more resilient — that overseas volume expands but overseas margins compress toward domestic levels as price competition follows the brand into new markets, or that localisation turns into a permanent cost burden rather than a moat. If that happens, the thesis is not early. It is wrong.

What I think now

The real question is not whether BYD can sell more cars abroad. It is whether it can become locally durable there.

The forward signals I am watching: the Szeged plant’s capacity utilisation in the Q3 2026 interim report — if it begins approaching 100,000 units annualised without a margin deterioration narrative attached, that is the first localisation proof point. And separately, whether BYD breaks out energy storage as a reportable segment in the 2026 interims. If it does, the platform thesis has enough commercial weight to require standalone disclosure. If it does not, I will continue to treat storage as optionality rather than underwriting it as a value driver.

A future Toyota is not just a company that can export everywhere. It is a company that can belong everywhere.

As of the date of publication, I hold positions in BYD Company (HKEX: 1211) and Hang Seng Tech ETF (Xetra: H4ZX). Positions may change after publication without notice. Cohong Lane is a periodical publication made generally available to the public; this is disclosure of my positions, not a recommendation to buy, sell, or hold any securities. Full disclaimer · About Philip.