Deutsche Bank's headquarter in Beijing, China , November 19, 2024. /CFP

Global investors will soon realize the potential of Chinese stocks, which have been largely overlooked and by then, they may have to pay a higher premium to chip in, Deutsche Bank suggested in its latest analysis on China's economy and market.

The Wednesday report has swept the screens of investors both in and out of China for its strong bullish tone and careful examination on Chinese assets and technologies that have become rare in Western discussions.

"Investors who like leading companies with moats cannot ignore this: it is Chinese companies, not the Western companies they see as economically superior, that have the widest and deepest moats today," it says.

The report, authored by Peter Milliken, the bank's Hong Kong-based analyst focusing on the Asia Pacific region, shed a light on the unique advantages China has gained that have been largely skewed and dismissed in the waves of bearish media reports centered on the country's "economic slowdown" which might not be true, it says. Here are some key takeaways from the report:

Chinese companies' growing moat

When a Chinese company released its large language model DeepSeek last year, it was referred to as a "Sputnik moment" for AI by Silicon Valley entrepreneurs. But Deutsche Bank's report goes further by saying that it is rather a "Sputnik moment" for China - the competitiveness of Chinese companies, especially those in high value-added sectors, can no longer be ignored.

"It is increasingly difficult to ignore the fact that Chinese companies are offering better value for money and often better quality in many manufacturing sectors and, increasingly, even in services," the report says.

China's economy is fine

China's economy, as well as how its run, are no stranger to Western criticism which has grown more ferocious as it seemingly departs from the years characterized by dough-digit growth. Official statistics released last month show the country's GDP growth hit its target of 5 percent last year – a modest number in its own record but still far outpaces other major economies including the U.S., Japan and European Union.

"Despite a cyclical slowdown, China is still growing more than twice as fast as most developed markets," the author says.

Beijing has adopted an economic path not very different from those taken by other developed countries in the past such as the United States, Singapore and many European countries, the report noted.

Much comparison has been made between China's current "economic slowdown" to Japan's lost decades – a lengthy period of economic stagflation precipitated by the asset price bubble's collapse in the 1990. 

Interestingly, even during the 1980s which is still seen as an important part of the Japanese Economic Miracle, the country's GDP growth was only at roughly 4%. The author points out that by contrast, today's anxiety about whether China's economic growth is 4% or 5% and that it is "slow" may evolve to seeing it as a "miracle" in hindsight.

"Unlike some other countries and regions struggling in the middle-income trap, China has become a global leader in manufacturing and an increasing number of service industries," it says.

China has unique advantages as population ages

One of the main premises that supports the theory of China's economic "Japanification" is its aging population, which could dampen economic growth. However, there are two unique advantages that separates China from other countries and could help turn things around, the author noted.

One is the country's high-level of automation with about 70% of the world's industrial robots installed, which brings productivity advantages and thus increases per capita wealth.

Second is the country's Belt and Road Initiative, which connects China's industrial ability to emerging markets throughout the world, from BRICS to ASEAN countries. These young markets could potentially offset the effects of an aging population and help support sustained economic growth, the report suggests.