The Year of the Fire Horse – will China race ahead?

Janet Mui
Head of Market Analysis
RBC Brewin Dolphin

In Chinese astrology, the fire horse symbolises speed, advancement and unpredictability. This symbolism is fitting for the country’s current status, says Janet Mui, Head of Market Analysis at RBC Brewin Dolphin, who examines why this year could prove critical for China as it looks to leverage strategic advantages in technology and resource.

As China enters the Year of the Fire Horse, it faces a mixed economic picture. While deflationary pressures persist and the property market remains weak, there are definite bright spots, particularly in technology and AI innovation. Consumption growth may remain elusive for now, but it also represents significant potential as the country continues its transition from an infrastructure-led model toward one driven more by domestic consumption.

Time and again, China has demonstrated its ability to respond to economic pressure through targeted policy pivots and industrial support, while remaining committed to a long-term strategic vision. This is largely due to a political structure that enables planning on a multi-decade horizon and surgical precision in directing resources into priority sectors.

New technologies, for example, aren’t only developed domestically but are deployed at scale – often faster than in other major economies. AI innovation and adaptation, in particular, has the potential to evolve more rapidly in China, much like a galloping fire horse.

China gets into the AI saddle

Only a few years ago, many global investors had effectively written China off, with concerns arising primarily from politics rather than economic growth. Regulatory crackdowns in the tech sector created fears that shareholder returns could suffer at the expense of policy objectives, leading Chinese equities to trade at steep discounts.

That perception has gradually shifted as AI has moved to the centre of both policy and corporate agendas, particularly following the arrival of Chinese AI research company, DeepSeek. Policy support is now increasingly concentrated in sectors aligned with national priorities, including semiconductors, electric vehicles, automation and AI infrastructure.

This has resulted in renewed capital markets activity. After several subdued years, Chinese companies have turned to Hong Kong again as a primary listing venue to access international capital. This reflects a return of investor appetite for exposure to China, linked to both the emerging AI economy and investors seeking diversification away from expensive U.S. tech stocks. Increasingly, investors buying exposure to China aren’t viewing it simply as a cyclical growth opportunity, but as a structural bet on its national AI strategy.

For 2026, this shift may still only be in its early stages. AI development has a multi-year runway, and valuations for many Chinese tech giants remain below global peers. And despite the potential here, the road ahead may deliver a bumpy ride. Chinese markets – particularly around speculative IPO positioning – remain retail and sentiment-driven, which can amplify both rallies and corrections. So, while the Year of the Fire Horse may bring bursts of optimism, investors can expect volatility along the way.

Critical minerals – China’s strategic horsepower

China’s domestic economic transition coincides with a broader transformation in global trade. For decades, globalisation was largely driven by efficiency – with production gravitating to the lowest cost locations, while trade norms and rules provided stability. In today’s environment of geopolitical tension and tariff threats, however, resilience has become the dominant priority.

In this new landscape, strategic leverage matters more than low cost, and China has that leverage when it comes to critical minerals and rare earths, not merely because it mines them, but because it processes and refines an estimated 90% of global supply. While deposits exist elsewhere, and the U.S. is accelerating efforts to reduce dependence on China,the bottleneck lies in processing rather than geology. The refinement process is technologically complex, environmentally damaging and, therefore, difficult and slow if not impossible to replicate.

This matters even more in the age of AI because its advanced infrastructure and hardware rely on specialised metals and magnets. Control of these inputs translates into strategic leverage – supply restrictions, or just the mere possibility of supply issues, can influence trade negotiations and shape alliances.

Although many countries aim to diversify supply chains to reduce geopolitical risk, they remain deeply reliant on China’s ecosystem. Even if they wanted to walk away from China, they can’t. In practice, supply chain diversification often means building parallel capacity rather than replacing existing networks – reinforcing rather than displacing China as a superpower.

At the same time, China has gradually diversified its reserves away from U.S. Treasuries while steadily increasing its gold holdings. This trend accelerated following Russia’s invasion of Ukraine, as sanctions underscored how access to dollar reserves can become a policy tool in geopolitical disputes. According to the World Gold Council, gold as a share of China’s reserves has risen from just above 3% in 2022 to nearly 10% in January 2026.

While the Year of the Fire Horse may bring faster shifts in policy and alliances, the underlying trend is clear: economic leverage increasingly rests on ownership of resources and industrial capacity. For investors, this implies that the demand for real assets, such as commodities, alongside advanced industrial capacity, becomes more structural than cyclical. Amid geopolitical tensions, gold is likely to remain in demand as a strategic reserve asset for China and beyond.

Where is the UK in the race?

For the UK, these shifts create a delicate balancing act. While the country remains strategically aligned with the U.S., it also aspires to a deeper economic engagement with China through trade, financial services and supply chains – driven in part by economic necessity. With UK growth subdued in recent years, expanding external sources of demand has become increasingly important.

UK Prime Minister Keir Starmer’s recent visit to China and meeting with President Xi reflects a pragmatic approach, leading to announcements on financial cooperation, green investment and improved market access. The UK’s positioning is less about choosing sides and more about facilitating economic exchange.

The UK’s competitive strengths lie in financial services, its legal framework and professional services, with the added benefit of a favourable time zone bridging East and West. As a result, financial and business intermediation remains a key competitive advantage. London, for example, is already positioned as a leading offshore Chinese renminbi (RMB) centre – a role that appears set to strengthen. This is more than just market expansion, it provides UK investors with more direct, local access to China-related investments, like sovereign bonds. As the partnership grows, it may encourage cross-listing and access to securities, opening up further investment options.

Trade between the UK and China, however, remains modest relative to the size of their economies. It’s a fun fact that despite China’s economy being roughly 30 times larger than Ireland’s, the UK trades more with Ireland than with China. This underscores how that trading relationship has significant room to expand, both in services and goods.

A faster, less predictable world

Overall, the Year of the Fire Horse points to a world that’s moving at speed but becoming less predictable. Yet beneath the volatility, structural trends are emerging. China’s economy will become less reliant on infrastructure and property and more focused on technology, AI and the control of key resources. Rather than decoupling in a fragmented world, China is reshaping its superpower role through its tech ecosystem and rare earth stranglehold, even as other nations invest in their own strategic capacity.

Resource and national security are increasingly shaping global capital spending, supporting demand for commodities, AI infrastructure and the companies enabling this buildout. China remains central to many of these themes, and an important source of opportunity, particularly in sectors aligned with long-term policy priorities.

For investors, maintaining a diversified portfolio across regions, sectors and asset classes offers exposure to these structural forces while reducing reliance on trying to back a single, winning horse.

About the author

Janet Mui

Head of Market Analysis

Janet Mui, CFA is Head of Market Analysis at RBC Brewin Dolphin and a voting member of the Asset Allocation Committee. She is part of the investment solutions team which generates central investment guidance and manages a range of risk-rated portfolios.

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