REG - Baillie GiffordChina - Baillie Gifford China Growth Trust Annual Results
01/04/2025 07:00
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RNS Number : 0204D Baillie Gifford China Grwth TrstPLC 01 April 2025
RNS Announcement
Baillie Gifford China Growth Trust plc
Legal Entity Identifier: 213800KOK5G3XYI7ZX18
Results for the year to 31 January 2025
Regulated Information Classification: Additional regulated information
required to be disclosed under the applicable laws and regulations.
The following is the results announcement for the year to 31 January 2025
which was approved by the Board on 31 March 2025.
Over the year the Company's net asset value total return† was 35.4% and the
share price total return† was 29.4%, compared with a total return of 32.4%
for the MSCI China All Shares Index (in sterling terms).
† Alternative Performance Measure - see Glossary of Terms and Alternative
Performance Measures at the end of this announcement. Source:
Refinitiv/Baillie Gifford and relevant underlying index providers.
Baillie Gifford China Growth Trust aims to achieve long term capital growth
through investment principally in Chinese companies which are believed to have
above average prospects for growth. At 31 January 2025 the Company had total
assets of £159 million.
The Company is managed by Baillie Gifford & Co, an Edinburgh based fund
management group with approximately £205 billion under management and advice
as at 27 March 2025.
Past performance is not a guide to future performance. The value of an
investment and any income from it is not guaranteed and may go down as well as
up and investors may not get back the amount invested. The Company may borrow
money to make further investments. This is commonly referred to as gearing.
The risk is that, when this money is repaid by the Company, the value of these
investments may not be enough to cover the borrowing and interest costs, and
the Company makes a loss. If the Company's investments fall in value, gearing
will increase the amount of this loss. The more highly geared the Company, the
greater this effect will be.
Investment in investment trusts should be regarded as medium to long term. You
can find up to date performance information about China Growth at
bailliegiffordchinagrowthtrust.com
(https://www.bailliegifford.com/en/uk/individual-investors/funds/baillie-gifford-china-growth-trust/)
See disclaimer at the end of this announcement.
31 March 2025
For further information please contact:
Naomi Cherry, Baillie Gifford & Co
Tel: 0131 474 5548
Jonathan Atkins, Director, Four Communications
Tel: 0203 920 0555 or 07872 495396
Chair's Statement
Introduction
It is a privilege to succeed Susan Platts-Martin as Chair of Baillie Gifford
China Growth Trust plc (the 'Company'). Susan retired on 30 April 2024 after
seven years as Chair and ten years as a Non Executive Director. The Board is
grateful for Susan's significant contribution. Following the recruitment of
Sarah MacAulay in May 2024, the Board has now been completely refreshed since
the change in mandate to reflect the skills and experience needed to oversee
the China strategy.
The Company's performance in the financial year to 31 January 2025 was
positive, with a NAV total return of 35.4%, outperforming the benchmark by 3%.
Government stimulus was a catalyst for a substantial rally in China equities,
the renaissance of the growth style and outperformance by the Company,
partially reversing the disappointing performance since the mandate change.
This positive performance has continued since the financial year-end driven
by the launch of DeepSeek and President Xi's meeting with the tech
entrepreneurs. Whilst Baillie Gifford's investment time horizon is five to
ten years, it is encouraging that the Manager has capitalised when conditions
for growth investing are more favourable.
The Board's agenda has been resolutely focussed on enhancing shareholder
value: an in depth analysis of the Company's strategy, a 4.5% share buyback,
introduction of a performance related Conditional Tender Offer for 100% of the
share capital in 2028 (the 'CTO'), renewal of the loan facility, enhanced
marketing of the Company and a visit to China to meet portfolio companies and
analysts that work within Baille Gifford's Shanghai office.
The Board believe that the Company has a unique investment strategy. There is
no other open or closed end equity fund offering a China growth style,
investment in unlisted companies, prudent gearing, a competitive cost and a
commitment to discount management via a buyback and a 100% performance related
Conditional Tender Offer.
Key Performance Indicators ('KPIs')
The Company has four KPIs:
• Net Asset Value per share total return ('NAV TR') relative
to the benchmark
• Share price total return relative to the benchmark
• the discount of the share price to Net Asset Value ('the
discount')
• the Ongoing Charges Ratio ('OCR')
In the financial year to 31 January 2025 NAV TR outperformed the benchmark by
3%. The share price total return slightly underperformed the benchmark due to
a widening of the discount.
In November 2024 the Company announced a performance related Conditional
Tender Offer, detailed below. In the short period from 1 December to 31
January 2025 the NAV TR and share price total return outperformed the
benchmark by 0.1% and 2.9% respectively.
From the mandate change to Baillie Gifford in September 2020 until 31 January
2025, the Company NAV TR and share price total return has underperformed the
Benchmark by 11.7% and 16.3% respectively.
Total Return Performance*
Year to Since Since
31 January announcement Mandate
2025 of Conditional change (#)
Tender Offer (†) 31 January
to 31 January 2025
2025
NAV TR (%) 35.4 3.6 -31.4
Share price TR (%) 29.4 6.4 -36.0
Benchmark TR(‡) (%) 32.4 3.5 -19.7
The discount widened to an average of 11.6% in the financial year to 31
January 2025 (11.3% in 2023/24).
The OCR slightly increased to 1.1% (1.0% in 2023/24).
Further details regarding the KPIs can be found on page 24 of the Annual
Report and Financial Statements.
Investment Performance
The rebound in the Company's performance in absolute and relative terms during
the financial period was striking. In the first half of the period the Net
Asset Value ('NAV') per share rose 10%, lagging the benchmark by 2%. In the
second half, NAV per share rose 23%, outperforming the benchmark by 5%. As the
year progressed, the Company's growth style began to outperform value,
providing a tail wind for Baillie Gifford's management style for the first
time in four years. Whilst insufficient to offset the preceding three years
underperformance, the financial year to 31 January 2025 may mark a tipping
point if China equity market gains can be sustained. Further details of
portfolio performance can be found in the Investment Manager review below.
Since assuming the role as Investment Manager in September 2020,
Baillie Gifford has consistently emphasised that the period to measure
performance for the Company's strategy is five to ten years. Notwithstanding
the rally in the financial year to 31 January 2025, the Board is conscious
that September 2024 marked the fourth anniversary of the mandate change and to
date returns both in absolute terms and relative to the benchmark have been
disappointing.
Equally, the four-year period has been unusual relative to the history of MSCI
China. At the nadir of the China equity market in January 2024, it was only
the second period in the 30-year history of MSCI China where the market had
fallen for three consecutive years, accompanied by the typical pattern of
underperformance of growth relative to value in a falling market. This was a
significant headwind for a China growth strategy.
The Board reviewed investment performance since assuming the mandate in
September 2020. This was conducted in tandem with the fund managers and the
Baillie Gifford Investment Risk team. The review concluded that the portfolio
had been managed consistent with the growth style, outperforming the MSCI
China growth index but underperforming the benchmark. In the period September
2020 to December 2024 the only sub-sectors to outperform the benchmark were
the MSCI China value and FTSE SoE ('State Owned Enterprise') indices,
consistent with a flight to safety in a bear market but neither a natural home
for growth stocks. Whilst the process of selecting growth stocks was
functioning well, Baillie Gifford has enhanced the investment process via
better discipline around valuation when buying a new stock, selling losers
earlier and enhanced analysis of regulatory and political change. Going
forward, Baillie Gifford has put in place refinements to the investment
process related to these factors.
Dividend
During the financial year, the revenue return per share increased by 4.5% from
2.42p to 2.53p. The dividend policy of the Company is that any dividend paid
will be by way of a final dividend and be not less than the minimum required
for the Company to maintain its investment trust status.
The Board is proposing a final dividend of 2.20p, an increase of 10%, which,
subject to shareholder approval, will be paid on 25 July 2025 to shareholders
on the register at the close of business on 24 June 2025, with the shares
trading ex dividend on 23 June 2025.
The increased income partly reflects the improvement in dividend pay-out
ratios for portfolio companies because of improved capital discipline. Whilst
a positive, Baillie Gifford's focus is on managing the portfolio for total
return and most future total returns are expected to be from capital gains.
Company Strategy
In the financial year to 31 January 2025 the Board reviewed the key aspects of
the Company's strategy: the objective, gearing, unlisted investments, Ongoing
Charges Ratio ('OCR') and discount management.
Objective
The Board has evaluated the Company's objective to 'produce long-term capital
growth by investing in China equities' and believes it remains relevant. China
equities represent 3% of a typical global equity index† and deserve a place
in a global investor's portfolio. An allocation to China is a source of
diversification for investors, especially given the historic inverse
correlation to the dominant US equity market.
In addition, the Board believes that an active manager should be an advantage
relative to a passive index investment in the long term given scope to
differentiate using fundamental analysis, including Environmental, Social and
Governance Issues ('ESG'). For more information on how ESG is integrated by
Baillie Gifford see page 45 of the Annual Report and Financial Statements.
Gearing
A prudent level of gearing is advantageous given the long-term returns
forecast in China equities by Baillie Gifford. The Board therefore replaced
the loan facility but reduced the size of the facility to US$25m, in April
2024 for a term of two years. The Board sets a gearing limit consistent with
maintaining prudent liquidity and its loan covenants, mindful that China
equities annualised volatility is high. Baillie Gifford reports quarterly to
the Board on the proposed use of gearing. On 31st January 2025 net gearing was
3%.
Unlisted Investments
The Board considers that the ability to own unlisted investments is a benefit
to shareholders given the Company's closed end status and the expertise of
Baillie Gifford in sourcing and understanding private investments via its
close relationships with founders.
The Company owns one private investment, ByteDance, which was 9% of NAV as at
31 January 2025. The valuation process is undertaken by Baillie Gifford and
supplemented by independent input from S&P Global and overseen by the
Board at the interim and annual results. Although the valuation of an unlisted
investment is an estimate based on peer multiples and ByteDance revenues, the
Board takes additional comfort that the ByteDance current valuation is
slightly above recent prices in the secondary market where privates are traded
and lower than the valuation used in the most recent annual buy-back by
ByteDance in November 2024.
In the period since acquisition to 31 January 2025, ByteDance has increased in
value 74% in sterling terms and is the largest single contributor to
outperformance. Whilst the ByteDance IPO is not imminent, it is an indication
of the value offered by private investment. A summary of the investment case
is provided below.
Ongoing Charges Ratio
The OCR was 1.1% (1.0% in the financial year to 31 January 2024). The main
cause of the slight increase in costs was the lower average level of net
assets during the period. The principal contributor to costs is 0.7% for the
management fee, which has the benefit that it is tiered and reduces as NAV
grows. The Board has closely scrutinised costs, which are competitive with
open and closed end peers.
Discount and Premium Management
The Board recognises the need to address any sustained and significant
imbalance of buyers and sellers which might otherwise lead to shares trading
at an anomalous discount or premium to NAV. The Board is committed to
utilising its share purchase and share issuance authorities where appropriate
to mitigate such an imbalance. Details of the Discount/premium policy is on
page 33 of the Annual Report and Financial Statements.
In the financial year to 31 January 2025 the Company bought back 2.76m shares
representing 4.5% of share capital excluding shares held in Treasury on 31
January 2024. The buyback was conducted at an average discount of 11%.
The buyback enhanced NAV per share by 0.5%.
100% Performance Related Conditional Tender Offer
In November 2024 the Board announced the introduction of a performance related
tender offer (the 'Conditional Tender Offer').
If the Company's NAV total return does not exceed the benchmark TR over the
period beginning from the NAV announcement in relation to 29 November 2024 to
the NAV announcement in relation to 30 November 2028, then the Conditional
Tender Offer will be held as soon as practicable thereafter. The Board
believes that a Conditional Tender Offer in December 2028 will allow the
Company and Baillie Gifford appropriate time to outperform against its
benchmark and in the event it does not, to offer shareholders a liquidity
event.
The Conditional Tender Offer, if implemented, will be for 100% of the issued
share capital of the Company. The Conditional Tender Offer will be priced
close to the prevailing NAV at the time of repurchase (adjusted for the costs
associated with the tender offer).
The introduction of the Conditional Tender Offer will not change the Board's
current approach to discount management.
China Risks
Risks related to investing in China are difficult to diversify given the
single country mandate and could adversely affect companies held within the
portfolio. These comprise the economic outlook and geopolitical risks,
including the potential impact of sanctions. The Board evaluates the risks
with Baillie Gifford and, where appropriate, with input from external
advisers and experts. A summary of Principal Risks is on page 35 of the Annual
Report and Financial Statements.
Marketing
The Board co-funds marketing with Baillie Gifford. This includes the website
(bailliegiffordchinagrowthtrust.com) and digital content from
Baillie Gifford. In addition, during the period, the Board decided to fund a
programme of marketing targeting wealth managers and this was undertaken via
its broker. If you would like to receive updates from the Company, please scan
the QR code on the rear cover of the Annual Report.
Share Premium Account Cancellation
The Board is proposing the cancellation of the Company's share premium account
at this year's AGM. The Company has a substantial share premium account which
is non-distributable. The cancellation of the share premium account, subject
to the confirmation of the Court, will be credited to a distributable reserve.
The cancellation of the share premium account (as explained in more detail on
pages 121 to 122 of the Annual Report and Financial Statements) to create
distributable reserves provides the Board with flexibility to use such
distributable reserves should it wish to do so for shareholder distributions
(such as share buybacks or dividends) in the future.
The Board
In line with the succession plan in the 2024 Annual Report, we welcomed Sarah
MacAulay to the Board on 1 May 2024. I succeeded Susan Platts-Martin as Chair
on 1 May 2024. The Board continues to meet all the relevant diversity criteria
for a London listed investment company.
In February 2025 the Board travelled to China with the fund managers to meet
companies, independent experts and the Baillie Gifford investment team in
Shanghai. The Board was impressed with the growth opportunities outlined by
portfolio companies, driven by innovation in sectors such as electric
vehicles, e-commerce, the development of local consumer brands, semiconductors
and high‑end manufacturing. The trip also demonstrated Baillie Gifford's
depth of investment expertise and strong company relationships in China.
Annual General Meeting (the 'AGM')
The AGM will be held at 1 Moorgate Pl, City of London, London, EC2R 6EA on
Thursday 19 June 2025, at 10am. The meeting will include a presentation from
Baillie Gifford and all shareholders are invited to attend. The Board
encourages all shareholders to exercise their votes on the AGM resolutions by
completing and submitting the form of proxy elections in advance of the
meeting and submitting any questions by emailing enquiries@bailliegifford.com
or by calling 0800 917 2113. Baillie Gifford may record your call.
Outlook
The headlines are filled with uncertainty regarding the outlook for China.
Commentators debate whether 'de-coupling' between the US and China will
accelerate and include higher trade barriers or even economic sanctions;
alternatively, there is an opportunity for a 'grand bargain' to be struck,
reducing tensions. Experts discuss whether the China stimulus in September
2024 was a 'whatever it takes' moment to boost consumption and structural
reform is an inexorable process; alternatively, it is piecemeal and
insufficient. Corporate governance reform at Chinese companies drove a record
dividend payout and share buybacks in 2024, implying higher valuations.
However, this is offset by uncertainty over the costs of 'serving the country'
and ensuring that companies support China's national strategy.
Uncertainty will mean volatility in the Company's share price and NAV. In a
typical year volatility in Chinese equities is nearly 30% per annum, amongst
the highest of any equity market. The Board will monitor and mitigate the
risks and evaluate with the Manager what steps can allow shareholders to
benefit from the volatility.
Whilst these debates continue, recent developments suggest there are
opportunities for Baillie Gifford, a growth orientated stock picker.
• Taking consumption, the 'secure middle class' in China is
now around a third of the population (up from 10% in 2010) and would
represent the third largest 'country' market in the world measured by
population. One third of retail sales are online fostering innovation in
e-commerce.
• In manufacturing China now produces one-third of global
manufacturing output and according to a respected Australian think tank has
the leading position in 37/44 critical global technologies, ahead of the US.
DeepSeek symbolises that China rivals the US in the deployment of one critical
technology, cost efficient AI. This is driving market share gain domestically
and now overseas for leading Chinese companies.
• President Xi's meeting with entrepreneurs in February 2025
is viewed in China as an important signal that the government views private
capital as a key contributor to the development of the economy. This is an
important reassurance for investors in private companies.
Collectively, these snapshots suggest that there are opportunities for
Baillie Gifford to own founder or family-owned businesses with structural
growth prospects that can weather the uncertainty over China's year to year
growth and still prosper.
Neither Baillie Gifford nor the Board can forecast China's economic growth or
relationship with the West with certainty, but valuation does offer comfort
that some of the uncertainties may be in the price.
Looking forward to the end of 2028 - eight years after the mandate change -
the Board therefore believes the Company offers attractive prospects. In the
best case there is opportunity for outperformance relative to the benchmark
and possible matching scope for a narrowing discount in the share price
relative to NAV; in the worst case an opportunity to redeem capital at close
to NAV via the performance related Conditional Tender Offer if the Company's
NAV total return falls short of its benchmark by 2028. The Board has
confidence that the Manager can deliver the former but believes the latter
protects shareholders in the event it does not.
Nicholas Pink
Chair
31 March 2025
* Source: LSEG/Baillie Gifford and relevant underlying index providers.
See disclaimer at the end of this announcement. All figures are stated on a
total return basis. Total return and discount are alternative performance
measures - see Glossary of terms and alternative performance measures at the
end of this announcement.
† The Company announced the introduction of a performance related tender
offer (the `Conditional Tender Offer') from 29 November 2024.
# Baillie Gifford & Co Limited were appointed as Managers and Company
Secretaries on 16 September 2020.
‡ The benchmark is the MSCI China All Shares Index (in sterling terms).
Managers' report
In 2024, after three years of decline, the Chinese market delivered a markedly
positive return, with our index rising by 32.4%. The Company's NAV rose by
35.4%, outperforming the benchmark. Returns for the period were driven by a
number of factors including a range of stabilisation and stimulus measures
announced by the government; strong growth in areas such as high-tech
manufacturing and exports; and an improvement in sentiment towards the private
sector. With regard to the Trust's NAV, company fundamentals also played a
strong role with most of our major listed holdings demonstrating operational
resilience and pleasing earnings growth.
Looking back on 2024: the Chinese Economy
In 2024, China's economy delivered a mixed recovery. Export and industrial
output growth remained strong, with exports rising by 7.1% and industrial
production increasing by 5.8%, driven by high-tech sectors such as integrated
circuits and electric vehicles. However, domestic consumption was weak, with
retail sales growing only 3.5%, reflecting consumer caution, modest wage
growth, and the lingering effects of the property market downturn.
China remains the world's largest exporter, contributing 30% of global
manufacturing value-added and accounting for 18% of global trade. Export
growth in 2024 was particularly strong in high-tech sectors such as integrated
circuits (IC) and electric vehicles (EVs). The surge in IC exports (up 26%)
was primarily fuelled by global demand for lagging-edge semiconductors
(typically 28nm and above). Indeed, it is here in mature process nodes (mass
market applications that use older rather than cutting edge technology) that
Chinese firms already have a competitive advantage. In 2024, we saw Chinese
companies such as Will Semi, SMIC and Hua Hong double down on this advantage
and expand capacity aggressively resulting in significant share gains globally
in industries such as automotive and consumer.
In 2024, total car exports from China were up 25% to 4.8 million units. A
quarter of these exports were electric cars and plug-in hybrids with key
markets including Europe, ASEAN and Latin America. Indeed, China's lead in
advanced battery technology, and its cost advantages brought about by scale in
its domestic market, have resulted in success for its products overseas.
Chinese EVs are high quality, affordable and are increasingly popular with
consumers around the globe as a result. Indeed, two of the Trust's holdings
are accelerating China's dominance in EVs with CATL retaining its status as
the world's top battery manufacturer globally, and BYD surpassing Tesla to
become the global leader in EV sales.
China's trade relationships continue to expand globally. Indeed, exports to
ASEAN and BRICS nations increased by 13% and are now equal in value to China's
exports to the US and the EU combined (26% in total). Additionally, China's
trade with countries participating in the belt and road initiative (BRI) grew
by 6.4%, accounting for more than half the nation's total foreign trade for
the first time. Therefore, while US tariffs on Chinese products can present
challenges to some companies, the macro impact is somewhat contained as
exports to the US account for only 15% of China's total exports, or 3% of GDP.
However, domestic consumption remained relatively weak in 2024, with retail
sales growing by only 3.5%, reflecting ongoing challenges such as the
continuing property market downturn and modest wage growth. Household excess
savings peaked at RMB 6tn in Q3 2024, equating to 15% of total consumption.
The high level of household excess savings presents both an opportunity for
future growth and a challenge if consumer confidence remains weak. Whether
these savings are spent or continue to be hoarded will be a key determinant of
China's economic trajectory in the coming years.
As we know, the property market is deeply intertwined with consumer confidence
in China. Housing accounts for more than 70% of Chinese household wealth,
making it the primary store of value. Fortunately, towards the end of the
year, the property market showed some early signs of stabilisation as a result
of government interventions aimed at restoring confidence. By December 2024,
sales in major cities increased 35%, with second-hand transactions in Beijing
reaching a 19-month high. Mortgage rate cuts, relaxed downpayment rules, and a
housing support programme providing low-cost funding to local state-owned
enterprises (SOEs) for the purchase of completed, unsold properties helped
improve market sentiment.
While policy measures have laid the groundwork for a recovery, the pace of
consumer sentiment improvement remains uncertain. Monitoring employment trends
and discretionary spending will be key to assessing a sustained recovery in
2025.
The meaning of September 2024: Policy
The Chinese government's decisive policy shift in September 2024 was a key
turning point for the market. Here, the government unveiled a comprehensive
economic package to stabilise key sectors and reignite growth after years of
cautious policymaking. As part of this initiative, authorities introduced a
50-basis point interest rate cut, which spurred credit growth of 15%, and
launched targeted liquidity injections of RMB 300bn, directly benefiting the
property sector by helping reverse a 30% decline in transactions and fuelling
a 10% rebound in sales.
In addition, new measures encouraged listed companies to conduct share
buybacks - up to 5% of their profits - to boost market confidence. Tax breaks
and R&D subsidies were also strengthened.
Beyond financial stimulus, Beijing took meaningful steps to restore confidence
in the private sector, particularly in internet and technology industries,
signalling a renewed focus on their roles as key engines of growth and
innovation.
Following the September announcement, the market saw one of its sharpest
rallies in years, with the CSI 300 index surging over 30% in just two weeks.
However, the sustainability of this momentum hinges on effective policy
execution and its impact on long-term economic fundamentals. Despite the
rally, investor sentiment remains cautious, with close attention being paid to
indicators such as consumer spending, credit growth, and property market
activity in order to assess the true depth and speed of recovery.
While retail participation has surged, signalling short-term optimism, we
would note that a meaningful rebalancing of the economy from an infrastructure
and debt driven model to one which is fuelled by innovation and domestic
consumption will take time. The transition is likely to remain uneven and
patience is likely to be required.
What matters more for the Company?
It is important to note, however, that looking solely at GDP figures can be
misleading. Despite the well-documented challenges in China's property sector,
the country continues to grow at a decent pace. The reason? A new generation
of growth drivers including technology, industrial upgrading, and the digital
economy are stepping up to fill the gap. Economic transitions of this
magnitude never proceed in a straight line, but they can create opportunities
for long-term, high-quality growth investors, like ourselves. To illustrate
this point, China's stock market accounts for 3% of the MSCI World Index. Yet,
when filtering for companies expected to grow revenues by more than 20% per
annum over the next three years, over 35% are Chinese. No other country is
demonstrating such a radical shift at this sort of scale. Indeed, the
transformation is already producing some very exciting growth companies which
are captured within the Trust portfolio.
Overall, therefore, we retain a relatively positive outlook on China's
internal growth engines which are supported by strong policy measures,
advancements in high-end technology, and manufacturing innovation. While
consumer confidence remains fragile, targeted stimulus efforts, gradual income
growth, and market adjustments are expected to stabilise domestic consumption
over time. Structural trends indicate that China's internal momentum remains
on a steady path, but a sustained recovery in consumer demand will be key to
unlocking the full potential of economic resilience. Given its critical role
in China's long-term growth, consumer sentiment remains a key area of focus.
Geopolitical Risks: Is the elephant still in the room?
Geopolitics remained a major headwind in 2024, with increasing US regulatory
scrutiny on Chinese technology companies, including the proposed forced
divestiture of TikTok's US operations, sanctions on some companies and tighter
AI export controls. The re-election of President Trump led to heightened
uncertainty, with new 10% tariffs on Chinese imports raising concerns over
broader trade relations.
However, with regard to tariffs, it is important to bear in mind the
following: the 25% tariffs imposed during Trump's first term on many Chinese
goods had only a limited impact on China's economy and did not exert
significant pressure on China. While China's exports to the US declined from
19% in 2017 to 15% last year, Chinese companies adapted by expanding into
other markets. As a result, China's share of global exports increased from 13%
in 2017 to 18% in 2024.
The US also further tightened its stance on Chinese tech, culminating in the
Supreme Court upholding legislation mandating that the Trust's holding,
ByteDance, sell its US business by January 2025 or face an outright ban. After
re-election, President Trump proposed, instead, that the US government take a
50% stake in ByteDance's US business in order to address security concerns
whilst keeping the platform operational. Currently, TikTok remains available
due to Trump's executive order extending the divestment deadline, while
negotiations continue to find a long-term solution balancing national security
and platform accessibility.
The sanctioning of individual Chinese companies by the US administration also
remains a risk. Sanctions, as a tool, were used increasingly by the Biden
administration with China responding in kind with its 'unreliable entity list'
for foreign companies operating in China. It is unclear if sanctions will be
used as frequently under the Trump administration, which so far appears to
have favoured broader trade tariffs. Whilst we continue to employ a range of
internal and third-party sources to help us manage the sanction risk, we would
highlight the difficulty of prediction here.
Meanwhile, the rise of DeepSeek, China's latest AI breakthrough, intensified
geopolitical tensions. DeepSeek is more than a fleeting trend. It represents a
pivotal force reshaping the global AI landscape. DeepSeek quickly became the
most downloaded AI app in the US and was seen as a direct challenge to
western AI dominance, drawing comparisons to the TikTok story. Concerns over
data security, algorithmic influence, and Chinese technological leadership
sparked debates in Washington, with Trump offering mixed signals - criticising
Chinese AI while simultaneously expressing interest in DeepSeek's potential.
These flashpoints reinforced broader anxieties about China's technological
rise.
While additional US tariffs and enhanced technological export controls present
challenges to some of the businesses in the Trust portfolio, we would note
that the vast majority of our holdings are generating most of their revenue
domestically in China and outside of the US. Given China's focus on
self-sufficiency in AI, its investments in building a local supply chain in
semiconductors, and its growth potential domestically in a range of industries
from robotics to renewable energy to autonomous vehicles, we remain enthused
about the opportunity set and the growth outlook for the Trust's holdings.
Where does that leave us as growth investors in China?
Whilst there is no paucity of growth companies in China, we need to make sure
that the potential share price return on offer is large enough to compensate
shareholders for the inevitable risk and volatility that comes with investing
in this complex country. Despite the recent rally, valuations remain below
long-term averages. As of 31 January, 2025, the Chinese stock market's
price-to-earnings (P/E) ratio is approximately 12 times, a 15% discount to its
long-term average and a 45% discount to global equity markets. This is at a
time when regulatory overhauls in key sectors are behind us, policy direction
has become clearer, and several industries are emerging from cyclical lows. We
believe, therefore, that our starting point today is optimistic with many high
quality growth companies trading at attractive valuations.
At the firm level, we would also like to highlight Baillie Gifford's
continued support for our Chinese equities business. January 2025 marks the 1
year anniversary of our dedicated China team, the 6 year anniversary of our
Shanghai office, and the 19 year anniversary of our All China Product.
Indeed, as a firm, our original investments in China date back to the early
1990s. During this time, we have continually invested in our ability to spot
the next decade's exceptional growth businesses, whilst also trying to
strengthen our ability to manage risk.
In 2024, we commissioned an analysis by our Risk team of our performance track
record since Baillie Gifford won the Company's mandate in 2020. This analysis
highlighted that, during the performance period, value significantly
outperformed growth as domestic investors sought refuge from the regulatory
crackdown and weak economic environment in high-dividend yield, low growth
stocks. The Trust's focus on growth companies was therefore a significant
headwind. The Risk team did, however, highlight valuation discipline as an
area that could be improved. In response, we have added a number of risk
tools to help us retain our valuation discipline at time of purchase, and to
keep track of, and respond promptly to, valuation anomalies as they occur
across the portfolio. In addition, we also continued to strengthen our roster
of independent research providers with a particular focus on domestic policy
and regulatory change.
Portfolio positioning and recent activity
We believe that the current portfolio represents a selection of the best and
most innovative listed and unlisted Chinese growth companies. Indeed, out of
an investment universe of c. 6000 stocks, the Trust invests in only c. 40-80
of the most attractive growth companies on offer in China. At portfolio level,
we retain exposure to some of the biggest structural growth trends via our
large overweight positions in consumer discretionary, communication services
and industrials. Here, one finds China's leading growth and private sector
companies in areas such as the platform economy, domestic consumer brands,
high end manufacturing, and the energy transition. These types of companies
account for approximately 90% of the Trust's portfolio. Our largest
underweight positions are in sectors where we have struggled to find
attractive growth opportunities such as financials, real estate and utilities.
The Trust has less than 10% of the portfolio in these sectors versus our index
with approximately 30%.
Portfolio turnover during the year was 19.1% representing a marked pick up
from the previous year. Valuations in China this year have fluctuated
significantly due to swings in market sentiment. We have taken advantage of
these dislocations - reducing exposure to companies facing structural
headwinds/irrationally high valuations while adding to those poised for
strong, sustainable growth at attractive valuations.
Over the year, we increased our exposure to high‑growth technology and
consumer businesses via additions to Meituan, PDD, Tencent and CATL. We also
bought new holdings in semiconductor leaders Naura and AMEC. At the same time,
we exited positions impacted by regulatory or structural risks, including WuXi
Apptec (US Biosecure Act risk), Asymchem Laboratories (geopolitical pressure
on biotech outsourcing), and LONGi Green Energy (solar industry oversupply).
This selective approach reflects our focus on high-conviction opportunities
that align with long-term, policy-supported growth areas.
01. Technology and internet ('platform economy')
China's technology and internet platform economy has undergone significant
regulatory scrutiny since 2021, with anti-monopoly measures reshaping the
industry. Now, with regulatory pressure behind us, leading platform companies
are stabilising and regaining investor confidence. AI is proving to be a
gamechanger for Chinese platform companies, reshaping the landscape with
efficiency gains, new revenue streams, deeper user engagement and improving
margins. Companies in the portfolio such as Tencent, Alibaba, PDD, Meituan,
and ByteDance are integrating AI into their businesses in order to optimise
services, enhance the user experience, and expand market dominance. Notably,
DeepSeek, a rising AI player, is driving breakthroughs in large language
models (LLMs) and enterprise AI solutions, strengthening China's
self-sufficiency in AI innovation. As China accelerates AI investment, we
believe these portfolio holdings are best positioned to capture long-term
value creation from the AI revolution, reinforcing their leadership in social
media, ecommerce, local services, and cloud computing.
02. Consumer and domestic champions
China's domestic consumption remains central to its economic transformation.
As 2024 unfolded, China's consumer market was at a crossroads. After years of
pandemic-driven uncertainty, spending habits are still evolving, shaped by
economic pressures, government policies, and shifting consumer mindsets. While
some households remain cautious, others are embracing new trends, creating
distinct investment opportunities.
At one end, wealthy consumers continue to indulge in luxury, keeping brands
like Kweichow Moutai in high demand. Meanwhile, price-sensitive shoppers are
flocking to value-driven platforms and brands such as Luckin Coffee, which is
quickly establishing itself as the dominant coffee brand in China, and PDD
(which owns and operates Temu), which continues to deliver sector leading
growth within ecommerce. The government's decision to boost consumption via a
massive trade-in programme for home appliances and electric vehicles gave
holdings such as Midea and Haier a boost, whilst tax incentives in EVs drove
an even bigger surge in clean-energy adoption. Indeed, now over half of new
cars sold in China are electric.
At the same time, experience-based spending is making a comeback. Families are
returning to Haidilao, a hot-pot restaurant and new holding for the Trust, and
Meituan's travel volume is picking up strongly. As the economy steadies and
stimulus efforts begin to take hold, China's consumption-led recovery isn't
just a possibility - it's a transformation in motion, paving the way for
compelling investment opportunities.
03. Industrial upgrading and manufacturing
For decades, China was known as the world's low-cost manufacturing hub. But
today, a transformation is underway, one that is shifting the country toward
advanced industrial innovation and technological self-sufficiency. At the
heart of this evolution are companies driving breakthroughs in semiconductors,
AI computing, and strategic resource extraction, where we see significant
long-term opportunity.
Two new holdings, AMEC and Naura, leading semiconductor equipment
manufacturers, are stepping up to fill the gaps left by US technology
restrictions. With China's access to foreign semiconductors increasingly
constrained, these companies are rapidly expanding their capabilities,
ensuring that China can build and scale its own semiconductor supply chain - a
fundamental step toward technological self-sufficiency. Indeed, despite export
restrictions on leading-edge chips, China has ramped up domestic semiconductor
manufacturing, producing 340 billion IC units in 2024. Government initiatives,
including $30bn in new funding, have accelerated research and development
(R&D) and fab expansion, reinforcing China's position as the world's
largest IC consumer, accounting for 60% of global semiconductor demand. The
opportunity for AMEC and Naura is exceptionally large.
Horizon Robotics, a new holding bought in October, is a rising force in
AI-driven chipmaking. As autonomous driving and AI computing gain traction
globally, Horizon is emerging as China's answer to NVIDIA. It has been
developing cutting-edge AI chips and software systems to power the next
generation of smart mobility and artificial intelligence applications in
Chinese cities.
China's shift toward high-end manufacturing and industrial innovation is not
just about catching up. It's about leading. We believe that this wave of
industrial upgrading will unlock immense long‑term opportunities, as the
country reduces its dependence on foreign technology and develops its own
world-class manufacturing capabilities.
Performance
The portfolio's performance was positive in both absolute and relative terms.
The NAV returned 35.4% for the period while the benchmark returned 32.4%. The
Trust's share price increased by 29.4% as the discount to NAV widened over the
period, along with discounts across the whole investment trust sector. Our
stock selection and overweight positions in consumer discretionary,
communication services and industrials contributed positively to our relative
performance. These sectors delivered strong share price performance as the
economy stabilised and expectations improved on the back of pro-growth policy
announcements from the Chinese Communist Party (CCP). The main detractors at
sector level were our stock selection in information technology and our
underweight position in financials. Regarding financials, our lack of exposure
to state-owned banks was a key driver.
Stock specific contributors to relative performance were varied. One of the
largest was Shenzhen Megmeet. Megmeet makes power supply and electric
automation products for both industrial and consumer electronics clients. The
company is exposed to several exciting end markets that include industrial
automation, new energy vehicles, smart home appliances and advanced
intelligent manufacturing. Recently, the company announced that it had been
selected as a supplier to NVIDIA. Share prices more than doubled on the back
of this news. Whilst the news is supportive of our investment hypothesis for
the company in that it demonstrates, yet again, the ability of its R&D-
heavy culture to expand product lines and win new customers, we believe the
market reaction had overshot the potential operational impact. As such, we
took this opportunity to reduce the position size.
Pop Mart, a toy designer and distributor, was another top contributor to
performance. Pop Mart has a unique position in the market. While the final
product presented is trendy toys, its overall concept is focusing on serving
emotions: connections, self-expression, and bringing joy to people's lives
through an innovative approach to collectible toys. Pop Mart's toys focus on
creating emotional experiences rather than just physical products. The company
has delivered strong operational performance over the year: net profit almost
doubled in the first half of 2024, and in Q3 2024 it reported positive 120%
year-over-year revenue growth. While the domestic business continues to grow
strongly (50%-plus), the company has been aggressively expanding overseas and
has gained traction. The overseas business is now contributing 30% of the
total revenue, and Pop Mart expects the revenue split between eastern and
western markets to reach a near 50:50 ratio in the next three to four years.
It plans to open 200 stores in the US. We reduced the holding after a very
positive share price performance.
Our holding in Meituan was also a key contributor to returns. In the first
three quarters of 2024, Meituan's total revenue grew around 26%
year-over-year, while net profit surged by around 373% year-over-year. The
core local commerce segment saw a roughly 22% year-over-year increase, driven
by strong food delivery and 'instashopping' demand, while new initiatives
expanded by around 33% year-over-year, led by community group-buying and
travel services. Meituan maintained its 69% market share in food delivery and
pursued international expansion, including the launch of Keeta in HK and Saudi
Arabia. With AI-driven efficiencies boosting profitability, the company
remains well-positioned, despite rising competition from Douyin and others.
Other positive contributors to our relative return included Brilliance China,
ByteDance, and gearing. Brilliance China is a JV partner to BMW. The shares
responded strongly during the year to the management team's decision to return
excess cash to shareholders in the form of a number of extraordinary
dividends. ByteDance was also a positive absolute contributor. It delivered a
return of c. 38% following another year of exceptional operational
performance. Revenue grew 36% during the last twelve months to September 2024,
well ahead of most of its peer group and in spite of weakness in the overall
Chinese economy. In addition to its strong revenue growth, the valuation
multiple applied to the company also increased in line with the multiple
expansion experienced by its peer group. Gearing for the year averaged 4.3%
and contributed positively to returns in the context of a rising market.
The main stock-specific detractors to performance were also varied. Xiaomi, a
leading mobile phone manufacturer, was one of the best performing stocks in
2024 as the market reacted positively to its entrance into the EV market. Not
owning shares in the company was a large detractor to our relative performance
and a key factor in our weak performance in the information technology sector
as noted above.
Our second largest detractor to relative performance was Guangzhou Kingmed.
Kingmed is a leading player in China's independent clinical laboratory (ICL)
industry. There was a sharp decline in its share price due to weak revenue
growth, collapsing profit margins, and financial concerns. In Q3 2024, revenue
remained flat at CNY 2.02bn, but net income plunged 99% to just CNY 4.19m,
with profit margins shrinking from 15% to 0.2%. Additionally, rising concerns
over accounts receivable and slowing non-Covid-related revenue further
dampened investor confidence, contributing to the stock's weak performance. We
are in the process of reviewing the company to understand if the long term
thesis remains intact. As a reminder, Kingmed was purchased due to the belief
that testing volumes were likely to increase as prices fell and as
preventative medicine was increasingly utilised in order to reduce healthcare
system costs. Additional kickers to growth were likely to come from increased
outsourcing of testing and via the potential monetisation of Kingmed's data
assets through the use of AI.
Zhongji Innolight was also a detractor to relative performance. Innolight
manufactures optical transceivers, crucial components in AI chip-training
clusters used in datacentres and training large language models. This is a
relatively new purchase for the portfolio. The investment case is based on the
growth in global AI-related capex and datacentre buildout, as well as the
potential uptick in Chinese AI capex. Innolight's technological edge has been
verified by leading global customers such as Amazon and Google. The stock
weakened in Q4 following Q3 2024 financial results which missed analysts'
forecasts. We are aware that growth in semiconductor-related businesses rarely
comes in a straight line and are therefore happy to look through this
short-term hiccup.
Kweichow Moutai and Yifeng Pharmacy were also detractors to relative
performance. Whilst Moutai's operational performance remained strong with
revenue continuing to grow at a double digit rate, the shares were weak as
market sentiment was cautious on high-end consumption. Yifeng Pharmacy's
shares were also weak after it failed to meet ambitious store opening targets.
We believe this is likely to be a shorter-term headwind in an industry with
strong growth ahead of it. Pharmacy store penetration is still low and the
market is very fragmented. Yifeng, as one of the leaders in the industry, is
likely to act as a consolidator and therefore deliver above industry level
growth. We remain happy holders of the shares.
The outlook for 2025
While uncertainties persist, China's economic transition towards an
innovation-led model is taking shape, with encouraging progress in 2024.
Policy measures to stabilize the property sector are gradually restoring
consumer confidence, while technological and industrial advances continue to
drive new growth opportunities. Sectors such as semiconductors, renewable
energy, electric vehicles, and AI are at the forefront of this transformation,
reinforcing China's position as a global leader in high-tech industries.
Beyond its domestic evolution, China's global influence is expanding, with
increasing capital flows into south-east Asia, the Middle East, and other
developing regions. This international reach is creating new opportunities for
Chinese businesses, particularly in high-end manufacturing, automation and
advanced computing. The resilience and adaptability of our portfolio companies
reflects these shifts, with strong earnings growth and global competitiveness
continuing to emerge.
Market sentiment toward China is showing early signs of stabilisation, with
foreign fund flows turning net positive in Q4 2024 for the first time in two
years, following a period of sustained outflows. Recent policy clarity and
valuation support have led to renewed interest from global investors, with
increased allocations from Asian and Middle Eastern sovereign funds.
Domestically, retail investor participation surged, with over four million new
A-share accounts opened in October alone, driven by government-led financial
market reforms and buyback incentives. However, institutional investor
participation remains subdued, reflecting ongoing caution.
While foreign capital remains selective, China's 45% valuation discount to
global equities and resilient earnings trajectory suggests that long-term
capital allocation may gradually improve, particularly if policy execution
continues to deliver tangible economic recovery.
The investment landscape is evolving, with broader interest from both regional
and global capital sources. We remain committed to identifying and supporting
China's most innovative businesses. While challenges remain, there are
significant opportunities. With structural tailwinds in place, we see 2025 as
a year of renewed potential for long-term investors. As the Chinese proverb
says:
长风破浪会有时，直挂云帆济沧海
"There will be times when the strong winds break through
waves, and with sails as high as clouds, we can cross even the vast ocean."
While these trends demonstrate resilience, challenges such as global trade
uncertainties and evolving geopolitical risks remain key considerations for
sustaining growth in 2025.
Linda Lin
Sophie Earnshaw
Baillie Gifford & Co
31 March 2025
For a definition of terms see Glossary of terms and alternative performance
measures at the end of this announcement.
Past performance is not a guide to future performance.
Review of investments
A review of the Company's ten largest investments as at 31 January 2025.
Tencent
Tencent is a leading social media and entertainment platform. It has a
dominant position in online gaming and an ecosystem in WeChat that we believe
is one of the strongest in China. Monetisation of WeChat's over one billion
monthly active users represents one growth driver for the company. Further
growth opportunities are provided by Tencent's strong positions in cloud
infrastructure and consumer and SME lending, along with its portfolio of
investee companies which span online music streaming, ecommerce, and short
form video. Pony Ma, the founder and Chairman of the company, is indelibly
focused on the long term and has executed exceptionally well in one of China's
fastest moving industries.
ByteDance
ByteDance is a social media and short form video company and it represents
the Company's first private investment. It was founded in 2012 by Yiming
Zhang and the company has grown to rank amongst the world's largest companies
of its kind. Its short form video app, Douyin, is a market leader in China,
and TikTok, its global equivalent, is dominating the format globally.
ByteDance benefits from a technological edge in machine learning which it uses
to bring out new applications tailored to different media forms and different
demographics. The company's ability to innovate in this space is exceptional
and we believe one of the key drivers of its likely future success. We believe
ByteDance has the potential to be a generation defining media company.
Alibaba
Alibaba is a leading online retailer. Its ecommerce business is returning to
growth after a period of intensified competition and share loss. Steadily
increasing online penetration in segments such as grocery and Fast Moving
Consumer Goods remains a long term driver for the business, whilst the
company's efforts to integrate live streaming and social media into the
platform aim to revitalise the platform following stiff competition for
customers and merchants attention from competitors. In addition, Alibaba
retains a strong position in infrastructure as a service, or the cloud, where
it has a similar business to Amazon Web Services. The company has taken the
decision to focus on profitable growth as opposed to growth at any cost.
Alibaba's partnership structure and its capable and experienced management
team are well-aligned with shareholders.
Meituan
Meituan is the largest online marketplace for the local service industry in
China, committed to enabling citizens to "eat better and live better". In
China, mobile technology is an essential means of navigating life,
particularly within its numerous megacities. Meituan's mobile online one-stop
shop operates across more than 200 categories in around 2,800 cities. It is
especially dominant in on-demand restaurant delivery, in-store dining, hotel
and travel booking, and film ticketing. It has been known to process over 50
million orders in a single day. There is no comparison outside China, given
its home country's size, and the sheer scale of the opportunity underscored by
the urban density of China's megacities. Meituan has built the largest
intra-city on-demand delivery network in the country, using cutting-edge big
data and AI technology to reduce delivery times dramatically. It is scarcely
possible to cross the street in China without a Meituan delivery driver
buzzing by. The company is already helping to change food consumption patterns
in China, with millions of people ordering two to three meals a day over the
platform.
Kweichow Moutai
Kweichow Moutai is one of the most important and iconic Chinese brands. It
manufactures premium baijiu (white alcohol) which has a heritage and respect
embedded within Chinese culture. Its unique brewing conditions and process
provide a core competitive advantage. When combined with supply scarcity and
limited competition in the very high-end market, Moutai is able to price at a
premium and maintain a loyal customer base. It is an extremely profitable
business. We believe in the strength and heritage of the brand, the
sustainability of revenue growth, and the longevity of its core competitive
advantage.
CATL
CATL is a Chinese manufacturer of lithium-ion battery cells with dominant
market share both in cathode chemistries (LFP) and form factors (prismatic)
batteries which are poised to grow through electric vehicle (EV) uptake and
energy storage. The company is a national champion in China, which is the
world's largest EV and electricity generation market, and it is well aligned
with the state's decarbonisation objectives and emphasis on Chinese
self-sufficiency in the hard sciences and technology. Beyond its home market,
CATL's future growth could be further fuelled by its operations in Europe
where it already has a manufacturing presence and its presence in other
emerging markets. We like the magnitude and duration of the growth opportunity
combined with CATL's market leadership, which we believe can prove defensible
thanks to the company's partnerships with a wide variety of automakers who are
making the shift to electric vehicles and relying on CATL's cell-to-pack
battery technology to do so.
PDD Holdings
PDD is an innovative ecommerce platform providing buyers with value-for-money
merchandise and fun and interactive shopping experiences. The company was
founded with the aim of targeting the hundreds of millions of Chinese
consumers who live in more rural provinces, but PDD's reach has now extended
well beyond that to wealthier consumers in the coastal cities and to developed
market consumers around the world. PDD is a relatively young company with a
very differentiated culture. It has firmly established itself as the value
option in the Chinese consumer's mind, owning and operating Temu. PDD built
its platform to resemble a `virtual bazaar' where buyers browse and explore a
full spectrum of products while interacting with one another. Buyers can share
product information on popular social networks and invite their friends and
family to purchase together, through which they enjoy not only the fun of
discovery and shopping but a comprehensive selection of value-for-money
products.
China Merchants Bank
China Merchants Bank is a leading consumer bank in China with a lengthy track
record and solid market share. It has outcompeted its state-owned rivals via
a relentless focus on the consumer. As such, it has built up an enviable
position in consumer lending and in wealth management, both segments with
strong growth potential. In terms of lending quality, this has been strong
through the cycle and we believe this is a bank that will continue to offer
attractive returns to shareholders.
Ping An Insurance
Ping An Insurance is one of China's leading financial services groups. It is
China's second largest life insurer, a market with growth potential driven by
China's emerging middle class and rising disposable income. It also has a
leading position in property and casualty insurance where it has consistently
delivered strong returns. In addition, it has consistently invested in
artificial intelligence and machine learning in order to increase the
efficiency and long-term viability of its core business. Again, this is a
company with a long-term, growth mind-set that we believe will deliver
substantial returns to shareholders.
Midea
Midea is the world's largest home appliance business, listed in Shenzhen. It
is a great quality business, investing for growth and appears very cheap. Home
appliance businesses are dull yet make great returns (28-29% return on
equity), require little capital, have brand equity and throw off a healthy
level of cash, some of which is returned to Midea shareholders via a 4%
dividend yield. This company stands out given its category leadership and
desire to grow the business in a meaningful way. It is investing in
technology, is at the forefront of innovation (22,000 patents and counting),
is expanding its product range and geographic reach and also buying in
additional brands at good prices. The move into robotics though the
acquisition of Kuka, a world leader, could be particularly interesting, not
least due to efficiency gains likely in its own business.
List of investments at 31 January 2025
Value % of total
Name Business £'000 assets *
Tencent Social media and entertainment company 19,013 11.9
ByteDance(u) Social media and entertainment company 14,429 9.1
Alibaba Group Online retailer, payments and cloud business 9,679 6.1
Meituan Online food delivery company 8,150 5.1
Kweichow Moutai Luxury baijiu maker 6,268 3.9
CATL Electric vehicle battery maker 5,315 3.3
PDD Holdings Online retailer 5,129 3.2
China Merchants Bank Consumer lending and wealth management 5,057 3.2
Ping An Insurance Life and health insurance 4,984 3.1
Midea Group White goods and robotics manufacturer 3,781 2.4
BYD Hybrid and EV automobiles 3,666 2.3
NetEase Gaming and entertainment business 3,423 2.2
Shenzhen Megmeet Electrical Power electronics manufacturer 3,366 2.1
Zijin Mining Group Renewable energy enabler 2,909 1.8
Pop Mart Toy and collectibles maker 2,716 1.7
Weichai Power Construction machinery and heavy duty trucks 2,715 1.7
Zhejiang Sanhua Intelligent Controls Heating and cooling component manufacturer 2,491 1.6
Sunny Optical Technology Electronic components for smartphones and autos 2,412 1.5
Anker Innovations Consumer electronics 2,411 1.5
PROYA Cosmetics and personal care company 2,397 1.5
BeiGene Immunotherapy biotechnology company 2,325 1.5
Haidilao International Hot pot restaurant brand 2,214 1.4
Estun Automation Robotics and factory automation company 2,023 1.3
Jiangsu Azure Small form batteries 1,983 1.2
ENN Energy Gas distributor and provider 1,968 1.2
Shenzhen Inovance Technology Factory automation company 1,965 1.2
Shenzhou International Garment manufacturer 1,954 1.2
Fuyao Glass Industry Group Automotive glass manufacturer 1,952 1.2
Centre Testing International Testing and inspection company 1,951 1.2
Shandong Sinocera Functional Material Advanced materials manufacturer 1,943 1.2
Kingsoft Software for SMEs and corporates 1,730 1.1
KE Holdings Online real estate 1,708 1.1
Luckin Coffee(†) Coffee retailer 1,688 1.1
SG Micro Corp Semiconductor designer 1,618 1.0
Naura Technology GP Integrated micro-electronics company 1,537 1.0
Li-Ning Domestic sportswear manufacturer 1,530 1.0
Zhongji Innolight Optical transceiver and component maker for AI chips 1,501 1.0
Advanced Micro-Fabrication Etch and deposition semiconductor equipment manufacturer 1,489 1.0
Kingdee International Software Software for SMEs and corporates 1,483 0.9
Silergy Semiconductors & semiconductor equipment 1,237 0.8
Sungrow Power Supply Component supplier to renewables industry 1,231 0.8
Yifeng Pharmacy Chain Drug retailer 1,231 0.8
Yonyou Network Technology Software for SMEs and corporates 1,127 0.7
Sinocare Diagnostics and diabetes company 1,029 0.6
Robam Appliances White goods manufacturer 1,010 0.6
Minth Automotive parts manufacturer 1,007 0.6
Shanxi Xinghuacun Fen Wine Factory Distiller and distributer of liquor products 973 0.6
Guangzhou Kingmed Diagnostics Diagnostics company 916 0.6
Horizon Robotics AI chips used in autonomous driving and advanced driving assistance systems 873 0.6
Hangzhou Tigermed Consulting Clinical trial contract research organisation 866 0.6
Medlive Technology Medical dictionary and marketing organisation 834 0.5
China Oilfield Services Oilfield service provider 675 0.4
Dongguan Yiheda Automation Co Automation components 606 0.4
New Horizon Health(#) Early cancer detection 194 0.1
Total investments 158,682 99.7
Net liquid assets(‡) 511 0.3
Total assets* 159,193 100.0
Borrowings (6,094) (3.8)
Shareholders' funds 153,099 96.2
* Total assets before deduction of loans.
(u) Denotes unlisted investment (private company).
† Includes investments in American Depositary Receipt (ADR).
# Suspended.
‡ For a definition of terms used, see Glossary of terms and alternative
performance measures on at the end of this announcement.
Listed Suspended Unlisted Net liquid Total
equities equities securities assets assets
% % % % %
31 January 2025 90.5 0.1 9.1 0.3 100.0
31 January 2024 91.1 - 8.4 0.5 100.0
Figures represent percentage of total assets.
Baillie Gifford - statement on stewardship
Baillie Gifford's overarching ethos is that we are 'Actual' investors. That
means we seek to invest for the long term. Our role as an engaged owner is
core to our mission to be effective stewards for our clients. As an active
manager, we invest in companies at different stages of their evolution across
many industries and geographies, and focus on their unique circumstances and
opportunities. Our approach favours a small number of simple principles
rather than overly prescriptive policies. This helps shape our interactions
with holdings and ensures our investment teams have the freedom and retain
the responsibility to act in clients' best interests.
Long-term value creation
We believe that companies that are run for the long term are more likely to be
better investments over our clients' time horizons. We encourage our holdings
to be ambitious, focusing on long-term value creation and capital deployment
for growth. We know events will not always run according to plan. In these
instances we expect management to act deliberately and to provide appropriate
transparency. We think helping management to resist short-term demands from
shareholders often protects returns. We regard it as our responsibility to
encourage holdings away from destructive financial engineering towards
activities that create genuine value over the long run. Our value will often
be in supporting management when others don't.
Alignment in vision and practice
Alignment is at the heart of our stewardship approach. We seek the fair and
equitable treatment of all shareholders alongside the interests of management.
While assessing alignment with management often comes down to intangible
factors and an understanding built over time, we look for clear evidence of
alignment in everything from capital allocation decisions in moments of stress
to the details of executive remuneration plans and committed share ownership.
We expect companies to deepen alignment with us, rather than weaken it, where
the opportunity presents itself.
Governance fit for purpose
Corporate governance is a combination of structures and behaviours; a careful
balance between systems, processes and people. Good governance is the
essential foundation for long-term company success. We firmly believe that
there is no single governance model that delivers the best long-term outcomes.
We therefore strive to push back against one-dimensional global governance
principles in favour of a deep understanding of each company we invest in. We
look, very simply, for structures, people and processes which we think can
maximise the likelihood of long-term success. We expect to trust the boards
and management teams of the companies we select, but demand accountability
if that trust is broken.
Sustainable business practices
A company's ability to grow and generate value for our clients relies on a
network of interdependencies between the company and the economy, society and
environment in which it operates. We expect holdings to consider how their
actions impact and rely on these relationships. We believe long-term success
depends on maintaining a social licence to operate and look for holdings to
work within the spirit and not just the letter of the laws and regulations
that govern them. Material factors should be addressed at the board level as
appropriate.
Income statement
For the year ended 31 January
Notes 2025 2025 2025 2024 2024 2024
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on investments 9 - 40,068 40,068 - (83,606) (83,606)
Currency (losses)/gains 13 - (1) (1) - 105 105
Income 2 2,718 - 2,718 2,599 - 2,599
Investment management fee 3 (246) (737) (983) (255) (765) (1,020)
Other administrative expenses 4 (584) - (584) (523) - (523)
Net return before finance costs and taxation 1,888 39,330 41,218 1,821 (84,266) (82,445)
Finance costs of borrowings 5 (149) (448) (597) (136) (408) (544)
Net return before taxation 1,739 38,882 40,621 1,685 (84,674) (82,989)
Tax 6 (210) - (210) (187) - (187)
Net return after taxation 1,529 38,882 40,411 1,498 (84,674) (83,176)
Net return per ordinary share 7 2.53p 64.39p 66.92p 2.42p (136.61p) (134.19p)
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital return columns are prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in this statement derive from continuing
operations.
A Statement of Comprehensive Income is not required as all gains and losses of
the Company have been reflected in the above statement.
Balance sheet
As at 31 January
Notes 2025 2025 2024 2024
£'000 £'000 £'000 £'000
Fixed assets
Investments held at fair value through profit or loss 9 158,682 124,751
Current assets
Debtors 10 40 23
Cash and cash equivalents 15 975 926
1,015 949
Creditors
Amounts falling due within one year 11 (6,598) (6,289)
Net current liabilities (5,583) (5,340)
Total assets less current liabilities 153,099 119,411
Capital and reserves
Share capital 12 17,087 17,087
Share premium account 13 31,780 31,780
Capital redemption reserve 13 41,085 41,085
Capital reserve 13 56,154 22,775
Revenue reserve 13 6,993 6,684
Shareholders' funds 153,099 119,411
Net asset value per ordinary share* 14 259.07p 193.06p
The Financial Statements of Baillie Gifford China Growth Trust plc (Company
registration number 91798) were approved and authorised for issue by the Board
and were signed on 31 March 2025.
* See Glossary of terms and alternative performance measures at
the end of this announcement.
Statement of changes in equity
For the year ended 31 January 2025
Notes Share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve reserve funds
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 February 2024 17,087 31,780 41,085 22,775 6,684 119,411
Dividends paid during the year 8 - - - - (1,220) (1,220)
Net return after taxation 7 - - - 38,882 1,529 40,411
Ordinary shares bought back into treasury - - - (5,503) - (5,503)
Shareholders' funds at 31 January 2025 17,087 31,780 41,085 56,154 6,993 153,099
For the year ended 31 January 2024
Notes Share Share Capital Capital Revenue Shareholders'
capital premium redemption reserve reserve funds
£'000 account reserve £'000 £'000 £'000
£'000 £'000
Shareholders' funds at 1 February 2023 17,087 31,780 41,085 107,748 6,240 203,940
Dividends paid during the year 8 - - - - (1,054) (1,054)
Net return after taxation 7 - - - (84,674) 1,498 (83,176)
Ordinary shares bought back in-to treasury - - - (299) - (299)
Shareholders' funds at 31 January 2024 17,087 31,780 41,085 22,775 6,684 119,411
Cash flow statement
For the year ended 31 January
Notes 2025 2025 2024 2024
£'000 £'000 £'000 £'000
Net return before taxation 40,621 (82,989)
Adjustments to reconcile company profit before tax to net cash flow from
operating activities
Net (gains)/losses on investments 9 (40,068) 83,606
Currency losses/(gains) 1 (105)
Finance costs of borrowings 5 597 544
Other capital movements
Changes in debtors (16) 3
Change in creditors 40 (97)
Taxation
Overseas withholding tax suffered 6 (212) (198)
Overseas withholding tax reclaims received 2 11
Cash from operations* 965 775
Interest paid (534) (541)
Net cash inflow from operating activities 431 234
Cash flows from investing activities
Acquisitions of investments 9 (31,284) (14,521)
Disposals of investments 9 37,421 15,663
Net cash inflow/(outflow) from investing activities 6,137 1,142
Cash flows from financing activities
Equity dividends 8 (1,220) (1,054)
Bank loans repaid (5,906) -
Bank loans drawndown 5,970 -
Shares bought back 13 (5,503) (299)
Net cash outflow from financing activities (6,659) (1,353)
Increase/(decrease) in cash and cash equivalents (91) 23
Exchange movements 140 (97)
Cash and cash equivalents at start of year 15 926 1,000
Cash and cash equivalents at end of year 15 975 926
* Cash from operations includes dividends received of £2,697,000 (2024 -
£2,576,000) and interest received of £21,000 (2024 - £23,000).
Notes to the Financial Statements
1. Principal accounting policies
The Financial Statements for the year to 31 January 2025
have been prepared in accordance with FRS 102 'The Financial Reporting
Standard applicable in the UK and Republic of Ireland' on the basis of the
accounting policies set out below which are consistent with those applied for
the year ended 31 January 2024.
2. Income
2025 2024
£'000 £'000
Income from investments
Overseas dividends 2,697 2,576
Other income
Interest 21 23
Total income 2,718 2,599
3. Investment management
Baillie Gifford & Co Limited, a wholly owned
subsidiary of Baillie Gifford & Co, was appointed as the Company's
Alternative Investment Fund Managers ('AIFM') and Company Secretaries on 16
September 2020. Baillie Gifford & Co Limited has delegated portfolio
management services to Baillie Gifford & Co. Dealing activity and
transaction reporting has been further sub-delegated to Baillie Gifford
Overseas Limited and Baillie Gifford Asia (Hong Kong) Limited.
The Investment Management Agreement between the AIFM and
the Company sets out the matters over which the Managers have authority in
accordance with the policies and directions of, and subject to restrictions
imposed by, the Board. The Investment Management Agreement is terminable on
not less than three months' notice or on shorter notice in certain
circumstances. Compensation would only be payable if termination occurred
prior to the expiry of the notice period. The annual management fee is (i)
0.75% of the first £50 million of net asset value; plus (ii) 0.65% of net
asset value between £50 million and £250 million; plus (iii) 0.55% of net
asset value in excess of £250 million, calculated and payable quarterly.
4. Net return per ordinary share
2025 2025 2025 2024 2024 2024
Revenue Capital Total Revenue Capital Total
Net return per ordinary share 2.53p 64.39p 66.92p 2.42p (136.61p) (134.19p)
Revenue return per ordinary share is based on the net
revenue return on ordinary activities after taxation of £1,529,000 (2024 -
£1,498,000), and on 60,389,282 (2024 - 61,981,380) ordinary shares, being the
weighted average number of ordinary shares in issue during each year.
Capital return per ordinary share is based on the net
capital gain for the financial year of £38,882,000 (2024 - loss of
£84,674,000) and on 60,389,282 (2024 - 61,981,380) ordinary shares, being the
weighted average number of ordinary shares in issue during each year.
There are no dilutive or potentially dilutive shares in
issue.
5. Ordinary dividends
2025 2024 2025 2024
£'000 £'000
Amounts recognised as distributions in the period:
Previous year's final dividend (paid 24 July 2024) 2.00p 1.70p 1,220 1,054
Also set out below are the total dividends paid and
proposed in respect of the financial year, which is the basis on which the
requirements of section 1158 of the Corporation Tax Act 2010 are considered.
The revenue available for distribution by way of dividends for the year is
£1,529,000 (2024 - £1,498,000).
2025 2024 2025 2024
£'000 £'000
Dividends paid and proposed in the period:
Proposed final dividend per ordinary share 2.20p 2.00p 1,296 1,229
(payable 25 July 2025)
6. Fixed Assets - Investments
Investments in securities are financial assets held at fair
value through profit or loss on initial recognition. In accordance with FRS
102 the tables above provide an analysis of these investments based on the
fair value hierarchy described below which reflects the reliability and
significance of the information used to measure their fair value.
Fair value hierarchy
The levels are determined by the lowest (that is the least
reliable or least independently observable) level of input that is significant
to the fair value measurement for the individual investment in its entirety as
follows:
Level 1 - using unadjusted quoted prices for identical instruments in an
active market;
Level 2 - using inputs, other than quoted prices included within Level 1,
that are directly or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is
unavailable).
The valuation techniques used by the Company are explained
in the accounting policies on page 100 of the Annual Report and Financial
Statements. The Company's unlisted ordinary share investment at 31 January
2025 was valued using the market approach using comparable traded multiples.
A sensitivity analysis of the unlisted security is on page 116 of the Annual
Report and Financial Statements. During the year, a listed equity investment
with a fair value at 31 January 2024 of £449,000 was transferred from Level
1 to Level 3. The shares were suspended and a write-down from the last traded
price was applied, to reflect the reputational impact of the suspension on the
underlying business.
As at 31 January 2025 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Securities
Listed equities 144,059 - - 144,059
Suspended equities* - - 194 194
Unlisted equities - - 14,429 14,429
Total financial asset investments 144,059 - 14,623 158,682
As at 31 January 2024 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Securities
Listed equities 114,200 - - 114,200
Unlisted equities - - 10,551 10,551
Total financial asset investments 114,200 - 10,551 124,751
* New Horizon Health was a Listed equity from 1 February 2024 until
suspension on 28 March 2024.
7. In the year to 31 January 2025 no shares were issued from
treasury (2024 - no shares were issued from treasury). The Company's
shareholder authority permits it to hold shares bought back in treasury. Under
such authority, treasury shares may be subsequently either sold for cash (at a
premium to net asset value per ordinary share) or cancelled. At 31 January
2025 the Company had authority to buy back 7,241,206 ordinary shares. During
the year to 31 January 2025, no ordinary shares (2024 - nil) were bought back
for cancellation and 2,756,602 ordinary shares (2024 - 160,700) were bought
back into treasury. Under the provisions of the Company's Articles of
Association share buy-backs are funded from the capital reserve.
8. Cash and cash equivalents table
1 February Cash flows Exchange 31 January
2024 £'000 movement 2025
£'000 £'000 £'000
Cash and cash equivalents 926 (91) 140 975
Loans due within one year (5,890) (63) (141) (6,094)
(4,964) (154) (1) (5,119)
9. The Annual Report and Financial Statements will be available on
the Company's website bailliegiffordchinagrowthtrust.com† on or around 10
April 2025.
10. The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 January 2023 or 2022 but
is derived from those accounts. Statutory accounts for 2024 have been
delivered to the Registrar of Companies, and those for 2025 will be delivered
in due course. The auditor has reported on those accounts; their reports were
(i) unqualified, (ii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of the
Companies Act 2006.
† Neither the contents of the Company's website nor the contents of any
website accessible from hyperlinks on the Company's website (or any other
website) is incorporated into, or forms part of, this announcement.
Glossary of terms and alternative performance measures ('APM')
An alternative performance measure ('APM') is a financial measure of
historical or future financial performance, financial position, or cash flows,
other than a financial measure defined or specified in the applicable
financial reporting framework. The APMs noted below are commonly used measures
within the investment trust industry and serve to improve comparability
between investment trusts.
The APMs are presented in Pounds Sterling rounded to the nearest thousand,
except where otherwise indicated.
Total adjusted assets
This is the Company's definition of adjusted total assets, being the total
value of all assets less current liabilities, before deduction of all
borrowings.
Net asset value
Net asset value is the value of total assets less liabilities (including
borrowings). The net asset value per share ('NAV') is calculated by dividing
this amount by the number of ordinary shares in issue (excluding treasury
shares).
Net liquid assets
Net liquid assets comprise current assets less current liabilities, excluding
borrowings.
Discount/premium (APM)
As stockmarkets and share prices vary, an investment trust's share price is
rarely the same as its NAV. When the share price is lower than the NAV it is
said to be trading at a discount. The size of the discount is calculated by
subtracting the NAV per share from the share price and is usually expressed as
a percentage of the NAV. If the share price is higher than the NAV, it is said
to be trading at a premium.
2025 2024
Closing NAV (a) 259.07p 193.06p
Closing share price (b) 232.00p 181.00p
Discount ((b) - (a)) ÷ (a) (10.4%) (6.2%)
Total return (APM)
The total return is the return to shareholders after reinvesting the net
dividend on the date that the share price goes ex-dividend.
2025 2025 2024 2024
NAV Share price NAV Share price
Closing NAV per share/share price (a) 259.07p 232.00p 193.06p 181.00p
Dividend adjustment factor* (b) 1.008783 1.009852 1.006801 1.007763
Adjusted closing NAV per share/share price (c) = (a) x (b) 261.35p 234.29p 194.37p 182.41p
Opening NAV per share/share price (d) 193.06p 181.00p 328.87p 308.00p
Total return (c) ÷ (d) -1 35.4% 29.4% (40.9%) (40.8%)
* The dividend adjustment factor is calculated on the assumption that the
dividend of 2.00p (2024 - 1.70p) paid by the Company during the year was
reinvested into shares of the Company at the cum income NAV/share price, as
appropriate, at the ex-dividend date.
Ongoing charges (APM)
The total expenses (excluding borrowing costs) incurred by the Company as a
percentage of the average net asset value. The ongoing charges have been
calculated on the basis prescribed by the Association of Investment Companies.
A reconciliation from the expenses detailed in the Income statement is
provided below.
2025 2024
Investment management fee £983,000 £1,020,000
Other administrative expenses £584,000 £523,000
Total expenses (a) £1,567,000 £1,543,000
Average daily cum-income net asset value (b) £139,357,895 £158,468,461
Ongoing charges ((a) ÷ (b) expressed as a percentage) 1.12% 0.97%
Gearing (APM)
At its simplest, gearing is borrowing. Just like any other public company, an
investment trust can borrow money to invest in additional investments for its
portfolio. The effect of the borrowing on shareholders' funds is called
'gearing'. If the Company's assets grow, shareholders' funds grow
proportionately more because the debt remains the same. But if the value of
the Company's assets falls, the situation is reversed. Gearing can therefore
enhance performance in rising markets but can adversely impact performance in
falling markets.
Gearing is the Company's borrowings adjusted for cash and cash equivalents
expressed as a percentage of shareholders' funds.
Gross gearing is the Company's borrowings expressed as a percentage of
shareholders' funds.
2025 2024
Gearing * Gross Gearing * Gross
£'000 Gearing (†) £'000 Gearing (†)
£'000 £'000
Borrowings (a) 6,094 6,094 5,890 5,890
Cash and cash equivalents (b) 975 - 926 -
Shareholders' funds (c) 153,099 153,099 119,411 119,411
3.3% 4.0% 4.2% 4.9%
* Gearing: ((a)-(b)) divided by (c), expressed as a percentage.
† Gross gearing: (a) divided by (c), expressed as a percentage.
Leverage (APM)
For the purposes of the Alternative Investment Fund Managers ('AIFM')
Regulations, leverage is any method which increases the Company's exposure,
including the borrowing of cash and the use of derivatives. It is expressed as
a ratio between the Company's exposure and its net asset value and can be
calculated on a gross and a commitment method. Under the gross method,
exposure represents the sum of the Company's positions after the deduction of
sterling cash balances, without taking into account any hedging and netting
arrangements. Under the commitment method, exposure is calculated without the
deduction of sterling cash balances and after certain hedging and netting
positions are offset against each other.
Active share (APM)
Active share, a measure of how actively a portfolio is managed, is the
percentage of the portfolio that differs from its comparative index. It is
calculated by deducting from 100 the percentage of the portfolio that overlaps
with the comparative index. An active share of 100 indicates no overlap with
the index and an active share of zero indicates a portfolio that tracks the
index.
Unlisted (Private) Company
An unlisted (private) company means a company whose shares are not available
to the general public for trading and not listed on a stock exchange.
Variable Interest Entity ('VIE')
VIE structures are used by some Chinese companies to facilitate access to
foreign investors in sectors of the Chinese domestic economy which prohibit
foreign ownership. The purpose of the VIE structure is to give the economic
benefits and operational control of ownership without direct equity ownership
itself. The structures are bound together by contracts and foreign investors
are not directly invested in the underlying company.
Treasury shares
The Company has the authority to make market purchases of its ordinary shares
for retention as treasury shares for future reissue, resale, transfer or for
cancellation. Treasury shares do not receive distributions and the Company is
not entitled to exercise the voting rights attaching to them.
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MSCI information is intended to constitute investment advice or a
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Sustainable Finance Disclosure Regulation ('SFDR')
The EU Sustainable Finance Disclosure Regulation ('SFDR') does not have a
direct impact in the UK due to Brexit, however, it applies to third-country
products marketed in the EU. As Baillie Gifford China Growth Trust is
marketed in the EU by the AIFM, Baillie Gifford & Co Limited, via the
National Private Placement Regime ('NPPR') the following disclosures have been
provided to comply with the high-level requirements of SFDR.
The AIFM has adopted Baillie Gifford & Co's stewardship principles and
guidelines as its policy on integration of sustainability risks in
investment decisions.
Baillie Gifford & Co believes that a company cannot be financially
sustainable in the long run if its approach to business is fundamentally out
of line with changing societal expectations. It defines 'sustainability' as a
deliberately broad concept which encapsulates a company's purpose, values,
business model, culture, and operating practices.
Baillie Gifford & Co's approach to investment is based on identifying and
holding high quality growth businesses that enjoy sustainable competitive
advantages in their marketplace. To do this it looks beyond current financial
performance, undertaking proprietary research to build up an in-depth
knowledge of an individual company and a view on its long-term prospects. This
includes the consideration of sustainability factors (environmental, social
and/or governance matters) which it believes will positively or negatively
influence the financial returns of an investment. The likely impact on the
return of the portfolio from a potential or actual material decline in the
value of investment due to the occurrence of an environmental, social or
governance event or condition will vary and will depend on several factors
including but not limited to the type, extent, complexity and duration of an
event or condition, prevailing market conditions and existence of any
mitigating factors.
Whilst consideration is given to sustainability matters, there are no
restrictions on the investment universe of the Company, unless otherwise
stated within in its Investment Objective & Policy. Baillie Gifford &
Co can invest in any companies it believes could create beneficial long-term
returns for investors. However, this might result in investments being made in
companies that ultimately cause a negative outcome for the environment or
society.
More detail on the Investment Managers' approach to sustainability can be
found in the ESG Principles and Guidelines document, available publicly on the
Baillie Gifford website bailliegifford.com and by scanning the QR code below.
The underlying investments do not take into account the EU criteria for
environmentally sustainable economic activities established under the EU
Taxonomy Regulation.
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