China's new growth leaders: inventing, not copying

As with any investment, capital is at risk.

In the West, we often view China through the lens of trade and what they sell to us. But this export-led view of the Chinese economy is outdated.

China is increasingly producing world-class companies in the industries that will define the next two decades: AI, semiconductors, robotics, and renewables. These are no longer just suppliers to the West. They are the innovators setting the pace.

For a long-term investor, this represents a structural shift. The "Made in China" label is being replaced by "Invented in China."

Global talent pool

In 2015, Sophie Earnshaw, joint manager of the Baillie Gifford China Growth Trust and co-leader of the China Equities Strategy with Linda Lin, visited the city of Lianyungang in China's Jiangsu province to meet a local biopharma company.

"What struck me was how global its talent pool was," Earnshaw tells the Short Briefings on Long Term Thinking podcast. The head of R&D had spent a decade at Eli Lilly in the US. While the firm still made its money from generics, its soul was now firmly in innovation.

This wasn't a one-off fluke, it was the start of a broader, country-wide phenomenon that has since redefined the portfolios of the Baillie Gifford China Growth Trust and Baillie Gifford China Fund.

As Sophie Earnshaw points out, China’s domestic retail sales are now ten times larger than its exports to the United States. This means that while trade tensions make for dramatic news, they are no longer the primary driver of the Chinese economy. The real story is the rise of a massive, sophisticated domestic consumer base that is hungry for high-quality goods, better healthcare, and advanced technology.

This shift toward domestic demand creates a massive tailwind for bottom-up investors like the team at Baillie Gifford.

Research-driven conviction

Baillie Gifford’s research often leads them to companies like Innovent Biologics. This company, just one of China’s biotech stars, is working on cancer treatments, such as antibody-drug conjugates (ADCs), that are attracting multi-billion dollar deals from international pharmaceutical giants.

In June 2025, Earnshaw’s conviction in Innovent’s ADC pipeline led to a significant investment. Just six months later, the firm signed an $11bn global distribution deal with a Japanese firm for two of its ADCs and a further drug under development. Innovent still needs to hit several milestones to earn the full sum, but the deal points to its potential to transform from a domestic pharma champion to an international one.

Distinguishing signal from the noise requires research beyond a standard Bloomberg terminal. Baillie Gifford utilises a dedicated team based in Shanghai to meet with the people actually running these businesses. This research-heavy approach is designed to uncover value that passive trackers or generalist funds simply miss.

This on-the-ground presence is what gives the managers of the Baillie Gifford China Growth Trust the conviction to hold through periods of volatility.

Becoming leaders

Earnshaw argues, “China’s companies are increasingly world-class in the industries that matter to the next 10 to 20 years.”

“AI, semiconductors, robotics, renewables – it’s a market that even if you decide you don’t want to invest, you cannot ignore,” she says.

One area investors can’t ignore is China’s tech ecosystem. “Beijing has doubled down on its desire to build out a domestic semiconductor ecosystem,” Earnshaw notes. To that end, Baillie Gifford has invested in equipment makers AMEC and NAURA, “the picks-and-shovels of the industry,” as policy pushes for greater use of locally made chips and domestically produced equipment.

“Our most successful investments have aligned with national, long-term priorities, while maintaining a profit motive,” Earnshaw says. “Since 2001, China has met about 90 per cent of the targets set in these plans, so they’re absolutely crucial documents,” she says.

“You have to be very selective,” Earnshaw says. “But this is a country that’s increasingly coming out with globally leading companies, and their valuations are currently pretty attractive.”

Important information:

This article does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is the OEICs’ Authorised Corporate Director and is an authorised Alternative Investment Fund Manager and Company Secretary of investment trusts. The trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the FCA. A Key Information Document is available at bailliegifford.com.