A look at China’s economy today reveals several dilemmas, especially for investors trying to gauge future growth. If the government sticks to the playbook of infrastructure investment to boost growth, debt problems will worsen. Boost the sinking real estate market and the real estate bubble remains unresolved. Cut interest rates – while the US is rising – and the pressure is on to prevent outflows to a stronger US dollar. With little room for lawmakers to act and geopolitics looming, a turn to defensive names in healthcare and insurance may be in order for investors. That’s what consumers wanted to buy anyway with the money they had when China ended its Covid measures late last year. When it comes to giving more money to consumers at large, official statements over the past two years make it clear that top leaders still need convincing. Exports are falling due to global weakness, which is not something China can control. The problem today that China has recognized is a lack of trust. This could send the economy spiraling downward in a vicious circle. And it could just as easily backfire in a virtuous cycle. “If the economy is doing poorly, confidence is weak. If confidence is weak, spending is low,” said Michael Pettis, a finance professor at Peking University. If “spending is low, the economy is doing poorly.” As a result of the lingering uncertainty, companies in China are backing away from hiring and future investment. They are also reducing debt – and paying more attention to cash flow, according to S & P Global Ratings. “If all businesses do this, growth will not be as fast, [but] the quality will be better,” Chang Li, director of corporate ratings at S&P, said in Mandarin, translated by CNBC. “The low growth rate is a long-term trend going forward.” He expects government stimulus to support only certain industries, such as high-tech, manufacturing and renewable energy. This auto industry – vehicles, battery charging stations and grids – is the only area in which the central Chinese government has so far announced the most concrete stimulus measures, mainly in the form of extended tax breaks. As for further details, key government meetings on the horizon could shed some light, at least on the domestic front. A meeting of the Politburo of the highest representatives is to be held at the end of July. Separately, the twice-a-decade Government Conference on Financial Work could soon take place — long delayed since last year’s expected deadline. The so-called “third plenum” of top officials is expected to outline a multi-year economic program in the fall. How to Play It also pays to dive into sectors and pick industries that can grow despite a lackluster economy. The nature of China’s post-Covid recovery over the past few months has unique characteristics that are not easily captured in broad strokes, Goldman Sachs’ Andrew Tilton and his team pointed out in late May. Covid has hit the services sector hardest and its recovery is only benefiting specific companies – rather than the network of supply chain businesses, analysts said. They also estimate that in a consumer-led recovery, Chinese companies listed on the mainland and Hong Kong stock markets would see 8% lower revenue growth than an investment-led recovery of similar size. That means the stock winners of China’s recovery are likely hidden beneath the broader market’s performance. A month on from Goldman’s assessment, China’s economic trajectory remains the same. Politicians only lowered some interest rates and announced support for electric cars. Citi cut its full-year GDP forecast in June, as did other investment banks. “Risks are piling up that weak links in the economy will become increasingly painful,” Citi analysts said in a note on Tuesday. “If weak confidence becomes so entrenched, it could become self-fulfilling and derail the economic recovery.” In this environment, Citi equity analysts like health care and insurance stocks, saying they are less affected or even supported by slower economic growth. Their favorites for the second half of the year are insurance giant AIA, with a price target of HK$106, and Shenzhen-based medical equipment company Mindray, with a price target of 450 yuan. That’s about 34% and 50% above where the stock ended Friday for the week. AIA is listed in Hong Kong, while Mindray is listed in Shenzhen. — CNBC’s Michael Bloom contributed to this report.