NEW YORK, Oct. 26, 2026 /PRNewswire/ — Egan-Jones released an analysis examining why China’s economy has far outgrown America’s since 2004 while its stock market has returned less than half as much. The commentary also asks whether artificial intelligence (AI) could bring a similar squeeze to US equity returns.
Measured in dollars, after inflation or adjusted for local prices, China’s economy grew at least twice as much as the US economy from 2004 to 2025. Over the same period, the iShares China Large-Cap ETF (FXI) returned less than half as much as the US total market, dividends included. Investors now pay little more than a third as much for Chinese large-cap earnings as for US earnings.
Egan-Jones attributes the gap to competition. Chinese companies have sought market share over profit, particularly in new industries such as electric vehicles and food delivery, where dozens of well-funded rivals compete the profits away. Chinese officials call the result neijuan, or involution, a contest in which every firm works harder and none gets ahead. Chinese companies earn less than their cost of capital; US companies earn more.
Carmaking illustrates the pattern. The industry’s profit margin has fallen every year since 2017 and had nearly halved by 2025, and only BYD, Xiaomi and Leapmotor among China’s electric vehicle makers are making money. Egan-Jones likens the sector to the American car industry around 1910, before the number of US carmakers fell for three decades and GM, Ford and Chrysler came to make more than 80% of output.
The gains did not disappear. Chinese urban wages multiplied many times over after 2000, and price wars passed much of the rest to customers, leaving shareholders last in line. Low valuations also reflect concern that geopolitical tension could strip investors of their Chinese holdings.
Egan-Jones considers whether AI could produce a similar dynamic in the United States, pointing to the falling cost of AI capability, a sell-off in software stocks in early 2026, and heavy capital spending by the largest technology companies. If AI turns more US industries into contests among many capable rivals, the firm concludes, customers would collect most of the benefit and the premium on US equities would be harder to defend.
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SOURCE Egan-Jones Ratings Co.
