China produces 70% of the world's electric vehicles, and Dale Nicholls says that number settles the question of who can compete with it.
The bear case on China is well rehearsed — weak consumer spending, a property market five years into a correction, soft business investment and a trade surplus that has become a political problem. Nicholls agreed with most of it and then said the market has stopped looking underneath it.
"I really don't see how anyone can really effectively compete with the Chinese in electric vehicles."
Nicholls runs the Fidelity China Special Situations trust, which can short stocks and borrow to invest, and he is sitting just under his 20% gearing limit because he thinks this is the part of the cycle when that pays.
The full interview is covered here so you can skip it. 47 minutes of audio, 15 minutes of reading.
Here are the 14 calls that matter.
👤 Guest: Dale Nicholls, Portfolio Manager of the Fidelity China Special Situations trust, which can hold private companies, short stocks and borrow to invest
🎙️ Host: Cris Sholto Heaton, Contributing Editor at MoneyWeek, who runs the MoneyWeek Talks podcast
📰 Published: 16 September 2026 on YouTube (MoneyWeek) · recorded in mid-July 2026
🔴 YouTube | ⏱️ 47 min | ✅ Time saved: 32 min
Key Takeaways
Housing starts are down 70% to 80% from the peak, and Nicholls thinks the supply adjustment is mostly done
Five years and a 30% price fall is roughly what property corrections in other markets have averaged
He bought BYD for the first time after years of avoiding Chinese carmakers on competition grounds
The overseas business is growing fast and earns a higher margin than the domestic one
Chinese companies stopped being net issuers of shares in 2024, which changes the arithmetic on earnings per share
The market punished Alibaba and Tencent for raising capital spending while rewarding US hyperscalers for the same thing
Cloud revenue growth in China is accelerating on the back of that spending
Kimi K3 is priced above the other Chinese open-weight models because it performs like a frontier model
Memory is getting a wave of Chinese investment, and Nicholls says it will still be a cyclical business
MSCI China trades near 10 times earnings, close to a standard deviation below its own history
ByteDance earns almost all its profit inside China while TikTok carries more than two billion users abroad
1. A K-Shaped Economy
Sholto Heaton opened by laying out the bear case — weak consumer spending, the property market, soft business investment, geopolitical pressure on exports — and asked whether what companies say is any more encouraging. Nicholls said the framing matched what he hears.
Domestic demand is weak and the strength is concentrated. "there's pockets of strength in certain areas" — high-end mall operators producing good numbers, and restaurant chains with solid same-store sales.
Anything touching AI is in a boom of its own, including the companies building the infrastructure behind it.
Export and overseas businesses are outperforming domestic ones across most of the companies he talks to.
The host named it a K-shaped economy and Nicholls accepted the description. The split runs inside sectors as well as between them: "Look at the Shanghai market currently" for high-end property prices, and budget hotels doing better than the hotel sector overall.
2. Property Just Has to Stop
Sholto Heaton made the case that the property slowdown is the thing gating consumer confidence, and asked what progress has been made. Nicholls said more than the headlines suggest.
The supply side has already adjusted violently. Housing starts are "we're down 70 80% from the peak" and a large number of private developers, including some of the big ones, no longer exist. "So there's been a really significant supply adjustment."
On his read of urbanization and upgrading, housing is another category where the Chinese consumer is under-consuming relative to their spending power.
The correction is now as long and as deep as the historical norm. "We're sort of five years in to a property correction with pricing down 30%." Against other markets, he said, "You're looking, sort of 5 years and 30% sort of price decline."
He watches price rather than volume, because price is what moves the wealth effect in the consumer's mind. First-tier cities are showing signs of stabilizing, helped by government action on borrowing costs.
The host's summary, which Nicholls accepted, is the lowest bar in the interview. "I think the message on property really is it doesn't need to get much better. It just needs to stop getting worse." — Cris Sholto Heaton
Savings are not the constraint; expectations are. Nicholls said attitudes to future asset prices and incomes are what is holding spending back.
The conversation also put the absence of stimulus alongside the price falls. China never ran the kind of household support much of the West did through the pandemic, which the exchange treated as a second reason confidence has not recovered.
3. Why He Bought BYD
China went from the fourth or fifth largest car exporter to the largest in about three years. Nicholls had been negative on the sector because "Competition is incredibly tough" — and has now bought into one name.
The stock is BYD, and he was explicit that the domestic competitive picture has not improved. What changed is the base: the numbers have been negative long enough that year-on-year comparisons are turning.
"You also have a very strong product cycle." He credits a run of models built around fast-charging technology that he says stands out against the competition.
The scale argument is the one he puts most weight on. "If you're producing 70% of the world's EVs, you're going to have a scale advantage." The share of the supply chain, he said, is higher still in batteries.
The overseas business is the part he is buying. He expects market share gains abroad at higher margins than at home, and said the same pattern runs across Chinese sectors rather than being specific to cars.
4. Tariffs Haven't Stopped Them
Sholto Heaton asked how far the export push can run given that some markets are effectively closed.
Nicholls accepted that some markets are shut and expects more tariffs where governments move to protect domestic industry.
His counter is the track record. Chinese companies have been managing US tariffs for years, and through those periods of rising tariffs they generally increased market share rather than losing it.
Europe is a stated growth priority for the electric-vehicle companies he talks to, and emerging markets are where the share gains are already visible — the host named Indonesia.
He expects them to manage the rest. The competitiveness that produced the share gains is the same thing he thinks carries them through tariff regimes.
5. The Supply Chain Is Better
Asked to separate the carmakers from what sits behind them, Nicholls said the components are the better investment.
"the supply chain is actually much more interesting" — you do not escape the domestic price war, but you sell into it rather than fight it.
CATL is his example: roughly 40% market share, more than three times the size of the number two player.
The addressable market is widening beyond cars. "electrification is going beyond autos" — commercial vehicles first, then two-wheelers, forklifts, excavators, mining equipment and eventually robotics.
Energy storage is the new driver, often paired with solar, which he called the fastest form of power generation to install. "everybody's scrambling to increase capacity globally", particularly because of the AI build-out, and he says the growth is showing up in this year's numbers.
6. Solar's Capacity Hangover
The host pointed out that solar manufacturers have been poor investments even as solar succeeded, and Nicholls agreed without qualifying it.
The economics of the technology keep improving: "still on a falling cost curve", with significant gains over time and long-term demand he still rates as very strong.
The industry economics are a different question. "solar stands out as one of those sectors" where so much capacity has been added that it will take time to absorb.
Batteries are at a different point of the same cycle. Capacity is being added there too, but he does not think the comparison holds.
This is what the anti-involution policies are aimed at. Nicholls defined involution as "the crazy competition" that leaves nobody in a sector making money, and said the policies are about bringing it back to a normal level and working off excess capacity.
7. Buybacks Turned in 2024
Sholto Heaton put the long-standing complaint that Chinese equities have delivered poor returns relative to the economy's growth, partly because companies have not been run for shareholders. Nicholls said one part of that has already changed.
Buybacks plus dividends have been rising steeply for five or six years. "it's a steep curve particularly on buybacks", and he thinks the market has not priced it.
He draws the comparison with Japan, where capital return has been one of the drivers of the re-rating, and said China's trajectory is not that different.
The bigger change is the share count. Chinese companies had been "net issuers of shares" until 2024, when that reversed for the first time. "So those buybacks are helping reduce the overall share count."
He lists three other things that could lift earnings per share: better margins as more revenue comes from overseas, some pricing benefit from anti-involution, and property simply ceasing to be a drag.
Property is the one sector whose earnings are lower than they were ten years ago, on his account, which is why stabilization alone would help the index.
8. Punished for Capex
On AI, Nicholls started with the split that has defined the global market rather than the China-specific story.
The divergence is between the companies spending on AI and the companies being paid for that spend, and he says China is no exception to it.
China's beneficiaries exist but are small parts of the index. He named optical transceiver companies that compete globally, domestic GPU designers and semiconductor fabrication equipment makers.
The spenders were treated the opposite way to their US equivalents. The market "reacted really badly to them increasing capex" at Alibaba and Tencent, which he thinks is overdone.
His test is the return, not the spend. The question that matters is "the return they're going to generate" on the capital, and he said the companies have decent track records and the feedback he gets on returns is good.
Cloud growth is accelerating underneath the sell-off, at rates he says are becoming comparable to the US, though margins are "much lower than you see in the west" with signs of improvement.
He thinks the market gives the big platforms nothing for their language models, even though the standalone listed model companies in China have done well.
The host drew the contrast directly: US hyperscalers were rewarded for promising to spend as much as possible, while Chinese large caps were marked down for the same commitment.
9. Beyond the Cheap Alternative
The interview was recorded in mid-July, just as Kimi K3 was released, and the host asked what makes the Chinese models interesting.
Kimi K3 is a bigger model than its Chinese predecessors and is priced accordingly — below US frontier pricing, but well above the other open-weight Chinese models.
The performance is what changed. It is "right up there with Global Frontier models", and "So I think it's just another indication of the innovation that's happening on the ground."
The repositioning is the point. "It's impressive to see because now they sort of they've moved beyond just sort of being the cheap alternative to having sort of really high performance models."
The model companies going global are not segmenting by geography, in his account: they go where demand is, and US demand is far larger than emerging-market demand.
On whether Western regulation blocks them, he is unsure and thinks the format works against enforcement. "I think it's going to be hard to regulate, sort of those, basically open source models."
His own investment focus is domestic — the usage inside China and what it does for Chinese companies, rather than the export story.
10. Robots Start on the Floor
The host put the case that combining Chinese models with a Chinese robotics supply chain is where physical AI gets built. Nicholls agreed and added a claim about the software side.
The hardware advantage is the obvious part, given the existing infrastructure and supply chain.
The less obvious part is that the embodied AI in the humanoid robots is competitive too, with what he called strong performance on some benchmarks.
The data is the third advantage. Building the data sets that train these models is the hard part, and he points to the sheer scale of Chinese manufacturing plus the willingness of Chinese corporates to deploy.
"So I think the outlook for China being globally competitive looks particularly good in robotics just given those factors coming together."
The first application is industrial, not consumer. There is demand in entertainment already, but "the factory floor will be the first place" for real use.
On the demographic argument — a shrinking workforce offset by automation — he was supportive but brief. Chinese companies have always been heavy users of automation, and he said robotics "could help for sure".
11. Memory Stays Cyclical
Sholto Heaton noted that China leads neither logic nor memory, and asked whether a wave of capital is coming to change that.
Semiconductors are a national priority and memory specifically is getting attention, with large listings coming and investment Nicholls expects to be significant.
The near-term constraint is US sanctions, which limit what the Chinese memory makers can sell; the host noted Apple has been lobbying to be allowed to buy memory from one of them for iPhones sold in China.
He will not accept the argument that memory has stopped being cyclical. Long-term supply agreements that lock up volume and price are "kind of the bull thesis on memory now", but "It could be perhaps less cyclical, but it will be cyclical."
"So, the key thing to watch in any cycle is supply." Current expectations put the supply response at 2028, and he says what Chinese producers add after that is worth watching.
12. Waiting on Animal Spirits
Asked about investment outside property, Nicholls said the aggregate numbers hide the split.
Fixed asset investment looks weak in aggregate, but the regions tied to technology and AI spending are clearly outperforming — he named Shenzhen and the eastern manufacturing cities.
The comparison he draws is with the US. "It's fair to assume that China's, definitely lagged in terms of the scale of investment, but as we've been talking about, that is clearly picking up."
What he wants is for that to spread. "So, one hopes that can sort of broaden out and get some of the animal spirits firing again."
On the regulatory crackdown, he treats policy as cyclical rather than permanent. The common prosperity period was tighter than previous cycles, but "the focus is very much on driving growth" now.
He is not claiming the risk has gone. He pointed to action in the travel sector against what regulators see as anti-competitive behavior, and called the picture a mixed bag.
Food delivery and e-commerce competition have been a separate drag on the large internet companies, which he says the market has conflated with the capital-spending question.
13. 10x and Forgotten Sectors
Pressed to talk about individual holdings rather than the macro picture, Nicholls named where he is looking.
"I still think, a good hunting ground is in the industrials" — specifically global share gainers with an emerging business that the market still values as an old-economy loser.
The valuation case is the second filter. "So the areas that have been ignored in the market are really cheap." MSCI China sits near 10 times earnings, close to a standard deviation below its own history.
"But it's quite different within the sectors." Consumer and financial stocks show an even wider gap against their own history, and many have cut costs through the downturn, which he thinks leaves operating leverage if conditions improve.
Among financials he prefers insurers to banks. "I think the insurers are much more interesting" on valuation, and because insurance is the part of the consumption story that never played out: penetration is still low against the West, "they will want more protection" as incomes rise, and regulatory changes in health insurance could add growth.
The numbers he attaches to that group are mid-single-digit price/earnings ratios, significant discounts to book value and high single-digit dividend yields.
Property is the other ignored area, and China Resources Land is his example. Contract sales are up year to date, and consolidation means the surviving developers are taking share.
The part he says the market misprices is the rental side. Investment income is "approaching 50% of earnings" there, has grown through the downturn, and is higher quality than development earnings, but the market lumps the two together. Same-store sales at its malls are running in the high single digits.
The REIT market is the piece he thinks is underappreciated, because it lets these companies recycle capital — he said the company could inject twenty or so malls over the next few years.
14. ByteDance's Offshore Option
The trust can hold private companies, and its highest-profile unlisted position is ByteDance.
"They continue to grow strongly. It's extremely profitable." Nearly all of that profit is domestic.
TikTok is the optionality. "Over two billion users" globally, and "So if they can monetize to really any level close to what they've been able to do domestically, there's, really significant potential there."
The monetization is advertising and commerce together. He pointed to the TikTok Shop push across several countries and said ByteDance is already a serious e-commerce player at home.
He argues the valuation is defensible on the domestic business alone, which leaves the international business as an unpriced option even after the marks moved up.
The exchange noted that Chinese digital businesses earn through services and commerce rather than advertising alone, a model UK investors tend to underrate.
WeChat is the extreme version. "It's effectively a utility. It's used in everything and still growing." Nicholls thinks its remaining monetization potential is significant but sees it as a domestic story rather than an export one.
Bonus Insights
The trust can short, and Nicholls said the driver is fundamentals rather than valuation. Expensive is a starting point, but what he looks for is deterioration or a peak — "bad businesses going through a good patch" and investor expectations that are too high.
The shorts also hedge his largest overweight. With a significant industrials position, he said finding short opportunities in the same sector is useful.
Gearing is a cycle indicator in his hands. He keeps net gearing within 20% and is just below it. "the gearing tends to move up" when the market is out of favor and expectations are low, which is where he thinks it is now — and he conceded it has not helped this year.
His answer to why a weak consumer and a strong mall developer can coexist is the whole pitch for the market. "there's many different companies doing many different things", which is what makes China interesting to a bottom-up stock picker.
Nicholls's bottom line is that the things holding Chinese equities back — property, the price war in manufacturing, the market's hostility to capital spending — are either stabilizing or being addressed by policy, while the things that should re-rate the index, buybacks, a falling share count, overseas margins and an AI build-out that has barely started, are not yet in the price.
Products, Companies & Tools Mentioned
BYD (The one carmaker he has bought, on a fast-charging product cycle and a fast-growing, higher-margin overseas business)
CATL (The battery maker with about 40% share, more than three times the number two, and his argument that the supply chain beats the carmakers)
Alibaba and Tencent (Sold off for raising capital spending, which he thinks is overdone given accelerating cloud growth)
ByteDance and TikTok (The trust's highest-profile private holding: profits almost entirely domestic, more than two billion users abroad)
WeChat (Described as effectively a utility, still growing, and still a domestic story)
Kimi K3 (The Chinese model released during the recording: bigger than its predecessors, priced above other Chinese open-weight models, and performing at frontier level)
China Resources Land (His property pick: contract sales up, rental income approaching half of earnings, and a REIT market that lets it recycle capital)
Apple (Named by the host as lobbying to buy memory chips from a Chinese supplier for iPhones sold in China)
Fidelity China Special Situations (The trust Nicholls runs, which holds private companies, shorts stocks and is near its 20% gearing limit)
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