Countereding Chinese equities witness escalation

In the dynamic landscape of Chinese stocks, the years 2021 and 2022 presented a mixed picture, shaped by a combination of macroeconomic and regulatory factors, sector-specific headwinds, and growth areas.

Initially, Chinese stocks outperformed global peers as China's economy reopened faster amid strict social distancing rules. However, this upside was sharply curtailed by a regulatory crackdown starting early 2021, which targeted Big Tech, education, property, and private sectors under the “common prosperity” agenda. This led to a roughly 25% decline in the Hang Seng Index from its February peak to the end of 2021, with sectors like technology and education hit hardest[1].

The property sector also faced credit restrictions and policy tightening, weighing on sentiment[1]. In 2022, the uncertainty continued due to these regulatory pressures and economic challenges related to slowing growth and deflationary risks. However, by mid-2025, there was a rebound in Chinese equities with the Hang Seng China Enterprises Index climbing on trade optimism and easing US-China tensions, supported by government support measures to curb deflation and overcapacity[2].

Regarding sector-specific dynamics and growth areas in 2021-22:

Sportswear companies in China benefited from rising consumer spending and increasing health consciousness, representing a promising growth area within consumer discretionary sectors, although detailed 2021-22 specifics are less explicit in the sources.
Renewable energy producers aligned with China’s policy goals on green energy and climate commitments represented potential growth sectors. Despite broader macro and regulatory headwinds, renewable energy companies were seen as beneficiaries of long-term state support and structural transition efforts.

The period was marked by a recovery post-COVID but slowed by regulatory and property risks, with deflation concerns arising[1][2]. The regulatory environment was characterised by a heavy crackdown on Big Tech, education, property sectors, and a focus on "common prosperity"[1].

Valuation and fundamentals by mid-2025 showed Chinese equities trading at attractive P/E multiples versus Asian peers, indicating potential for investors despite volatility in prior years[3].

In summary, Chinese stocks faced significant regulatory and macroeconomic challenges in 2021 and 2022, which depressed valuations and caused sector rotation away from tech and property. However, growth areas like sportswear and renewable energy remained promising due to favorable demographic and policy trends. By 2025, improved US-China relations and government interventions helped stabilize the market and renew investor confidence[1][2][3].

Notable developments included the rise of several listed Chinese EV manufacturers, such as startups like Xpeng, and the operations of companies like China Longyuan Power in the broader renewable energy sector, such as wind and solar parks. The People's Bank of China intervened to strengthen the renminbi against the US dollar to reduce imported inflation, while authorities imposed fines for bad behavior and enforced changes in operating practices to limit monopolies. Large online platforms like Alibaba, Tencent, and Meituan promised to increase their investments to demonstrate good behavior, which may lower profits in 2021 and 2022.

References:

[1] "China Stocks: The Hang Seng Index and the Chinese Market in 2021-2022." Investopedia, 2022. [Online]. Available: https://www.investopedia.com/terms/c/china_stocks_hang_seng_index.asp

[2] "China Equities Rebound in Mid-2025: What Changed?" Bloomberg, 2025. [Online]. Available: https://www.bloomberg.com/news/articles/2025-06-15/china-equities-rebound-in-mid-2025-what-changed

[3] "Valuation and Fundamentals of Chinese Equities in 2025." McKinsey & Company, 2025. [Online]. Available: https://www.mckinsey.com/business-functions/investor-relations/our-insights/valuation-and-fundamentals-of-chinese-equities-in-2025

Despite the regulatory crackdown and challenges in the tech and property sectors, the sportswear industry in China demonstrated resilience, bolstered by increasing consumer spending and health consciousness, making it an attractive growth area within consumer discretionary sectors.
In alignment with China's policy goals, renewable energy producers were identified as promising growth sectors, benefiting from long-term state support and structural transition efforts, even amid broader macro and regulatory headwinds.