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China is often discussed by global investors as a risk to be managed: geopolitics, regulation, tariffs, property and demographics. All of those risks are real. But a recent research trip to Shanghai and Beijing was a reminder that China is also something else: one of the world’s most important laboratories for innovation at scale.
That matters whether or not investors own Chinese equities directly. China is shaping cost curves, consumer expectations and competitive dynamics across industries that will matter to the next decade of global growth: electric vehicles (EVs), batteries, biologics, AI, autonomous driving, ecommerce and logistics. The question is not simply whether China is investable. The question is whether investors can afford to ignore the competitive pressure and innovation emerging from it.
The streets told part of the story before the company meetings did. In Shanghai and Beijing, the electric vehicle transition was impossible to miss. There were Teslas and other western brands, but the majority were Chinese brands: BYD, Li Auto, Zeekr, NIO, Xiaomi and many others I had never heard of. In 2025, new energy vehicles accounted for more than half of new passenger-car sales in China. By 2030, the International Energy Agency expects China’s electric car sales share to be about 80 percent.
The more interesting point is not just that China has more electric cars. It is that the country has built a full industrial system around them. Batteries, motors, software, charging infrastructure, supply chains and manufacturing capacity have developed together. Consumers are not choosing EVs because they are worthy; they are choosing them because they are increasingly affordable, practical and technologically compelling.
The improvement was also visible in the air. My Shanghai-based colleague described growing up near steel manufacturing sites north of Beijing, where the smog could be so thick that, in traffic, you sometimes could not see the car in front of you. While shocking, this also rang true. My brother lived in Shanghai from 2011 to 2015, and I remember him saying that the daily weather report included not just temperature and rain, but also the Air Quality Index and practical guidance on whether to go outside, whether children should avoid outdoor activity, and whether masks were advisable.
That is partly a story of deliberate government policy: tighter emissions standards, restrictions on polluting industries, investment in public transport and strong support for electrification. But policy alone does not explain the scale of the change. China has also demonstrated the ability to execute industrial transitions at extraordinary speed.
CATL is a better example of that industrial capability than any single car brand. Its advertising was visible when we arrived at Shanghai airport, but its significance goes far beyond brand recognition. CATL is the world’s leading manufacturer of EV batteries and energy storage systems. In 2025, it supplied 465 gigawatt hours of EV batteries, giving it almost 40 percent of global installations.
For investors, CATL is not simply a way to play EV adoption. It is a window into how China can turn scale into advantage. Battery manufacturing rewards process know-how, procurement discipline, research intensity, manufacturing yield and the ability to bring down costs without sacrificing performance or safety. CATL’s relevance also extends beyond cars. As batteries become cheaper and more efficient, stationary energy storage could reshape the economics of renewable power, grid stability and industrial electrification.
The same combination of scale, speed and integration was visible in daily life. To pay for almost anything, we had to use Tencent’s WeChat or Alibaba’s Alipay. I did not see any cash. Physical card machines were scarce. Payments, messaging, ride-hailing, food delivery, shopping and services all ran through mobile platforms. One morning, a colleague needed cold medicine. We ordered it on Meituan and collected it from a locker on the way to a meeting, roughly 20 minutes later. On our final evening, we used another app to order a bottle of Chinese red wine from an emerging vineyard in Ningxia. It arrived at our hotel in about 20 minutes.
It is a hyper-competitive market, and that competition is one reason investors must be selective. But the level of service, speed and infrastructure was hard to dismiss. China’s platform ecosystems show what happens when payments, messaging, delivery and merchant infrastructure become deeply integrated at national scale.
Customer paying via QR code at a market
Chinese innovation is not confined to consumer technology or EVs. Healthcare was another area where the trip challenged simplistic assumptions. WuXi Biologics remains a relevant example for many global investors. The company has had to navigate a more difficult geopolitical environment, including the proposed BIOSECURE Act in the US and broader concerns about supply-chain resilience. Yet its value proposition lies not merely in cost, but in process innovation, development timelines, manufacturing expertise and accumulated biological know-how.
The broader Chinese biotech ecosystem is also becoming more important. Chinese drugmakers signed 157 overseas licensing deals worth $136bn in 2025, more than double the previous year’s value. Companies such as Akeso and Innovent illustrate the shift from imitation to innovation: a market increasingly capable of producing globally relevant drug candidates, supported by deep scientific talent, large patient populations, fast clinical execution and a highly capable contract research and manufacturing infrastructure.
AI and autonomous driving showed a similar pattern. Many of the companies we met were young, fast-moving and shaped by constraint. Limited access to the most advanced semiconductors is a real issue, but it has also forced greater emphasis on model efficiency, inference cost and practical deployment. Our robotaxi rides were uneventful in the best possible way: smooth, safe and easy. Increasingly, though, the opportunity is not only domestic. Several autonomous-driving companies are looking outward, including to the Middle East, Southeast Asia and parts of Europe, where regulation, infrastructure or ride-hailing economics offer more attractive commercial deployment.
This is where China’s innovation model is distinctive. It combines deep supply chains, fierce competition, local government coordination and rapid iteration. That can produce extraordinary progress. It can also create shareholder risk. Competition is brutal. Policy matters. Geopolitics can overwhelm fundamentals. Not every impressive product becomes an attractive investment.
The trip left me more convinced that China cannot be reduced to a single investment conclusion. It is not simply “uninvestable” because of geopolitics. Nor is it automatically attractive because valuations are lower. The reality is more demanding.
For portfolios that own Chinese companies, the task is selectivity: identifying businesses with durable advantages, global relevance and the ability to navigate policy and competitive pressure. Across Baillie Gifford, we invest in fewer than 100 Chinese companies from a universe of roughly 6,000 listed businesses. In International portfolios with the flexibility to invest in China, exposure is deliberately selective, focused on a small number of companies where we believe the long-term opportunity outweighs the risks.
For portfolios that do not own Chinese companies, the task is still awareness. Chinese innovation will influence the competitive environment for western companies in autos, batteries, healthcare, AI, ecommerce, logistics and automation.
The most valuable lesson from being there was not that China is easy. It was that China is more advanced, more complicated and more outward-looking than many investors appreciate.
That makes it impossible to ignore.
Risk factors
The Funds are distributed by Baillie Gifford Funds Services LLC. Baillie Gifford Funds Services LLC is registered as a broker-dealer with the SEC, a member of FINRA and is an affiliate of Baillie Gifford Overseas Limited. All information is sourced from Baillie Gifford & Co unless otherwise stated.
As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty and greater volatility. These risks are even greater when investing in emerging markets. Security prices in emerging markets can be significantly more volatile than in the more developed nations of the world, reflecting the greater uncertainties of investing in less established markets and economies. Currency risk includes the risk that the foreign currencies in which a Fund’s investments are traded, in which a Fund receives income, or in which a Fund has taken a position, will decline in value relative to the U.S. dollar. Hedging against a decline in the value of currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. In addition, hedging a foreign currency can have a negative effect on performance if the U.S. dollar declines in value relative to that currency, or if the currency hedging is otherwise ineffective.
For more information about these and other risks of an investment in the Funds, see "Additional Information about Principal Strategies and Risks" in the prospectus. There can be no assurance that the Funds will achieve their investment objectives.
This communication was produced and approved in May 2026 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned.
As at March 2026, Baillie Gifford held BYD Company, CATL, Tencent, WuXi Biologics, Akeso, Tesla Inc, Alibaba, Meituan. A full list of holdings is available on request and is subject to change.
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