Egan-Jones: Why China's Rapid Growth Has Not Paid Off for Shareholders
Egan-Jones says China's economy has far outgrown America's since 2004 while Chinese stocks returned less than half as much as US equities, and it blames intense competition for the gap. The credit ratings firm also asks whether artificial intelligence could bring a similar squeeze to US returns.
- Egan-Jones says China's economy grew at least twice as much as the US economy from 2004 to 2025.
- Over the same period, FXI returned less than half as much as the US total market, dividends included.
- Investors pay little more than a third as much for Chinese large-cap earnings as for US earnings, according to the firm.
- Egan-Jones blames competition, or involution, with Chinese companies earning less than their cost of capital.
- It asks whether AI could make US industries more competitive and make the premium on US equities harder to defend.
A growth gap that did not reach investors
In an analysis released on Oct. 26, 2026, Egan-Jones compared the economic and market records of the two countries. According to the firm, China's economy grew at least twice as much as the US economy from 2004 to 2025, whether measured in dollars, after inflation or adjusted for local prices.
Over the same period, the iShares China Large-Cap ETF (FXI) returned less than half as much as the US total market, dividends included. Egan-Jones also notes that investors now pay little more than a third as much for Chinese large-cap earnings as for US earnings.
Competition over profit
Egan-Jones attributes the gap to competition. In its view, Chinese companies have pursued market share over profit, particularly in newer 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, which the analysis describes as a contest in which every firm works harder and none gets ahead. The firm says Chinese companies earn less than their cost of capital, while US companies earn more.
Carmaking is the example it highlights. The industry's profit margin has fallen every year since 2017 and had nearly halved by 2025, according to Egan-Jones. Among China's electric vehicle makers, only BYD, Xiaomi and Leapmotor are making money. The firm compares 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.
Where the gains went
Egan-Jones argues the gains from growth did not vanish. Chinese urban wages multiplied many times over after 2000, and price wars passed much of the rest to customers, leaving shareholders last in line. The firm adds that low valuations also reflect concern that geopolitical tension could strip investors of their Chinese holdings.
Could AI do the same to US equities?
The commentary then turns to the United States. Egan-Jones considers whether AI could produce a similar dynamic, pointing to three developments: the falling cost of AI capability, a sell-off in software stocks in early 2026, and heavy capital spending by the largest technology companies.
Its conclusion is conditional. If AI turns more US industries into contests among many capable rivals, the firm says, customers would collect most of the benefit and the premium on US equities would be harder to defend.
For investors, the analysis suggests that fast economic growth or technological change does not by itself guarantee returns to shareholders. Egan-Jones, an NRSRO founded in 1995 that offers credit ratings and proxy services, frames competitive structure and profitability relative to the cost of capital as the deciding factors.
PR Newswire: Egan-Jones Examines Why China's Growth Has Not Rewarded Shareholders
