Looking at China’s economy today, we find some dilemmas, especially for investors trying to gauge future growth. If the government insists on driving growth through infrastructure investment, the debt problem will worsen. Boosting a faltering real estate market, the housing bubble remains elusive. The pressure to cut interest rates sharply at the same time as the U.S. rate hikes prevents capital outflows and strengthens the dollar. With little room for policymakers to act and geopolitical hang-ups, investors may turn to defensive stocks in the healthcare and insurance sectors. When China ended its COVID-19 containment measures late last year, consumers wanted to buy something like this with their money anyway. As for delivering more cash to consumers on a massive scale, official statements over the past two years suggest that top leaders still need convincing. Exports are down due to global weakness, which is out of China’s control. China admits that the problem today is a lack of confidence. This could lead to a vicious circle in the economy. It can also easily bounce back in a virtuous cycle. “If the economy is doing poorly, confidence will be weaker. If confidence is weaker, spending will be lower,” said Michael Pettis, a finance professor at Peking University. If “spending is low, the economy will be poorly performing.” Continued uncertainty has led Chinese companies to scale back hiring and future investment. They also cut debt and focused more on cash flow, S&P Global Ratings said. “If all companies do this, the growth rate will not be as fast, but the quality will be better,” Chang Li, director of corporate ratings at S&P, said in Chinese translated by CNBC. “Low growth is the long-term trend going forward.” He expects government stimulus to support only specific industries, such as high-end technology, manufacturing and renewable energy. The electric vehicle industry, which includes cars, battery charging stations and power grids, is the only area where China’s central government has announced the most concrete stimulus so far, mainly in the form of extended tax breaks. As for other details, they are likely to become clearer, at least on the domestic front, with key upcoming government meetings. A meeting of senior Politburo officials will be held at the end of July. Also, the twice-a-decade government financial work conference may begin soon – a meeting that has been long delayed since it was expected last year. The so-called “Third Plenum” of top leaders is expected to set a multi-year economic agenda in the fall. How it works It’s also worth digging into the industry, choosing ones that can still grow in the face of an economic downturn. Andrew Tilton of Goldman Sachs and a team noted back in late May that the nature of China’s economic recovery from the coronavirus over the past few months had unique features that were difficult to generalize. Summarize to summarize. Analysts say the services sector has been hit the hardest by the coronavirus pandemic and its rebound has only benefited specific companies, not networks of supply chain firms. They also estimate that revenue growth for Chinese companies listed on mainland and Hong Kong stock exchanges will be 8% lower in a consumer-focused recovery than in an investment-led recovery of a similar size. That means stock winners from China’s economic recovery may be hiding under the broader market’s performance. A month after the Goldman Sachs assessment, China’s economic trajectory remains unchanged. Policymakers have only cut some interest rates and announced support for electric vehicles. Like other investment banks, Citigroup cut its full-year GDP forecast in June. “The risk is building that weak links in the economy will become increasingly painful,” Citi analysts said in a note Tuesday. “If weak confidence becomes so entrenched, it could become self-fulfilling and derail the recovery. In this environment, Citi’s equity analysts are bullish on healthcare and insurance stocks, noting that they are less affected or even supported by slower economic growth. They are most optimistic about the second half of the year insurance giant AIA (target stock price of 106 Hong Kong dollars) and Shenzhen medical equipment company Mindray (target stock price of 450 yuan). That’s about 34% and 50%, respectively, above the stock’s closing price on Friday. AIA is listed in Hong Kong, and Mindray is listed in Shenzhen. — CNBC’s Michael Bloom contributed to this report.