KKR's Henry H. McVey reports on his April 2026 trip to Asia, emphasizing KKR's continued conviction in the region's investment potential, particularly China. He notes China's steady GDP growth, moderating property sector drag, and a rapidly scaling, consumer-oriented AI strategy. The report also highlights China's supply chain resilience, evolving consumer behavior, and the broader global shift towards great power competition, urging investors to adapt to a "Regime Change" environment with flexible capital structures and thematic investments.
Every atomic assertion extracted from the underlying record, ranked by evidence strength.
Aggregate GDP growth in China appears quite steady despite ongoing imbalances and pressure on profits.
China's AI strategy is scaling rapidly, with distinct differences and similarities to the United States.
China's supply chain position appears more resilient than most, though not without internal strains.
The global investment landscape is moving away from benign globalization towards great power competition.
Asia can represent an important diversifier for global portfolios, especially in private portfolios.
AI adoption is surging through a consumer-driven grassroots effort in China, which is not as heavy-handed as the enterprise focus in the United States.
There appears to be less concern around disintermediation risks in China regarding AI compared to the U.S. and India.
Most Chinese deeply trust AI, while in the United States there is an opposite trend.
Recent episodes (Russia's invasion of Ukraine, 'Liberation Day,' U.S. strike on Iran) show both asset classes coming under pressure simultaneously.
KKR's conviction that Asia remains a core focus of its global investment strategy has been reinforced by recent trips in 2026.
Asia benefits from multiple, durable tailwinds, including corporate reform momentum in Japan and Korea, and consumption upgrade stories in India and Southeast Asia.
KKR is actively engaged in Asia, deploying and monetizing across Private Equity, Infrastructure, Real Estate, Capital Solutions, and Credit.
Rising commodity prices and renewed pressure on supply chains are creating immediate friction across parts of Asia, especially in smaller Southeast Asian countries.
Market attention in Asia is skewed towards energy security and supply chain resilience, rather than software disruption and Private Credit.
China has less worry about software obsolescence because the region largely bypassed the traditional SaaS buildout.
China has more limited exposure to Private Credit.
Domestic China buying of equities has modestly cushioned foreign equity outflows in 2026 YTD.
China wants more stability via more domestic flows, but foreign capital still plays an important role.
'New Economy' sector growth is expected to drive China GDP growth in 2026.
Real Estate is now less of a drag on China's GDP growth.
Fixed investment towards AI in China is strong.
Consumption in China is positive, albeit unspectacular.
The drag from China's property sector is moderating, estimated at a 100-basis points headwind in 2026.
The property sector drag in China is down meaningfully from a peak level of 370 basis points in 2022.
A large, stimulus-driven consumer inflection point is not on China's agenda.
The Chinese government is focused on 'fixing' legacy imbalances (housing, local government financing vehicles, excess capacity) in a deliberate and controlled manner.
China's currency has strengthened, signaling more global interest in owning Renminbi assets.
China's currency strengthening indicates growing confidence among Chinese policymakers that a 'cheap' currency is not needed to increase competitiveness.
KKR thinks that 4-5% appreciation per annum for the Renminbi makes sense during the next few years.
Renminbi appreciation should help improve domestic consumers' buying power.
The bigger opportunity for China lies in further rebalancing its economy away from exports and fixed investment to include a broader and deeper offering of services.
Automation acceleration will put more pressure on traditional manufacturing job loss in China.
China's easing of visa restrictions is supporting a pickup in inbound travel.
The Chinese government should use its current deflationary-linked, low long-term interest rates to issue bonds for more government safety net programs (healthcare coverage, retirement security).
Issuing bonds for safety net programs could help reduce China's high savings rate to more normalized levels.
Reducing China's savings rate would also reduce fixed investment if confidence can be restored.
Policy might be needed to match the 11-15 million university graduates entering China's workforce each year with annual retirees of 8-12 million.
Experiential and Cultural Consumption has boosted China Domestic Tourism.
Visa Easing is lifting Inbound Travel to China.
Executives across auto, robotics, and consumer services in China are discussing how AI is upgrading their productivity performance.
Despite direct material declines in exports to the U.S. from China, strong non-U.S. demand and re-routing of supply chains has supported China's overall export performance.
Chinese business executives are working hand in hand with local AI entrepreneurs en masse to drive productivity that dwarfs what is seen in some other countries in Europe and Asia.
China's AI model costs less, which KKR thinks is part of the master plan to increase adoption.
KKR's takeaway is that scale will matter in the AI race, and one or two large existing technology platform companies and some new entrants are likely best positioned to capture the most value.
Supply chains in China currently feel more stable compared to other parts of Asia recently visited.
Supply chain pressures in China are more concentrated in select areas like high-end memory chips, rather than broader inputs.
China's relative supply chain resilience reflects its ability to rely more heavily on domestic energy sources, including coal (61% of total energy) and renewables (10% of total energy).
China has absorbed the initial shock from the Middle East conflict more in stride than many global peers due to domestic energy reliance.
There are still areas of vulnerability within China, particularly financial strain facing local governments.
Traditional funding models for local governments in China, especially those tied to land sales, are under pressure.
The marginal propensity to spend in China remains challenged.
China's savings rate at 32% remains abnormally high.
China is rapidly scaling capabilities across advanced manufacturing.
The push for advanced manufacturing in China is strategic, not just cyclical.
Advanced manufacturing is likely a key underpinning of China's upcoming 15th Five-Year Plan.
The 15th Five-Year Plan reflects a broader shift towards industrial upgrading, digitalization, and green investment.
Advanced manufacturing, digitalization, and green investment are likely to be the primary drivers of growth in China going forward, not a sharp acceleration in consumption.
Consumer behavior in China is increasingly segmented.
What is working in China today is not broad-based consumption, but targeted pockets of strength.
Large-scale discounters (e.g., PDD), membership-based models (e.g., Sam's Club), and digital platforms (e.g., ByteDance) are gaining share in China.