The Rise of Chinese Tech Stocks: A Synergy of Technology, Capital, and Policy

Recently, China’s tech sector has been on a tear, fueled by a wave of positive developments. From the rise of DeepSeek and industry consolidation to Alibaba Cloud’s release of Qwen2.5-Max and its partnership with Apple, a technological revolution is unfolding at an unprecedented pace in China. 

Driven by bullish market sentiment and aggressive capital inflows, the Hang Seng Index has climbed steadily since January 13, with gains exceeding 23% at the time of writing, poised to challenge October’s highs. Meanwhile, the Nasdaq Golden Dragon China Index, MSCI China IT Index, and CSI 1000 IT Index have all posted significant gains. 

Yet, as this tech-led rally continues, investors are left wondering: Can the upward momentum of Chinese tech stocks sustain as the flood of positive news subsides? Has the market reached an inflection point for a full-scale “Buy China” strategy? And what risks lie ahead? 

Tech Breakthroughs: From DeepSeek’s Rise to Alibaba Cloud’s Apple Deal 

The AI sector’s rally began with the launch of DeepSeek-R1. DeepSeek’s emergence proved that high-end chips and massive budgets aren’t the only path to AI development—efficient algorithm design allows Chinese companies to achieve low-cost, high-performance AI training and inference even with limited computing power. 

This breakthrough has not only rattled global giants like OpenAI, Google, and Meta but also posed a new challenge to NVIDIA, the dominant player in high-end chips. DeepSeek’s rapid integration with platforms like WeChat Search, Baidu’s ERNIE Bot, and Alibaba Cloud’s Model Studio has further accelerated the scaling of China’s AI ecosystem. 

If DeepSeek fired the first shot in China’s tech resurgence with its algorithm optimization, Alibaba Cloud’s deal with Apple has opened a “win-win” path for Chinese tech firms seeking global collaboration. 

On one hand, Alibaba Cloud, as China’s largest cloud service provider, brings to the table its advanced Qwen model, stringent data privacy policies, and deep regulatory expertise. These advantages facilitate Apple’s AI deployment in China, allowing it to tap into the open-source ecosystem’s network effects while addressing market share losses due to limited access to Apple’s intelligent services in the region. 

For Alibaba, Apple’s vast user base provides invaluable resources for multi-scenario AI applications and data training. More importantly, the collaboration offers Alibaba Cloud insights into Apple’s operating systems, chip architectures, and data center designs, helping it navigate potential regulatory shifts in the future. 

Whether through breakthroughs in AI development or partnerships with global tech leaders, Chinese tech firms are driving industrial upgrades with innovation. The tangible results of these efforts have bolstered investor confidence, fueling optimism about the sector’s future and propelling stock prices higher. 

Reshaping the Investment Landscape: New Opportunities in Tech 

Unlike previous market reactions to news-driven rallies, the sustained rise of the AI sector this time may signal broader improvements in China’s venture capital ecosystem. 

In AI investing, three key barriers are widely recognized: high-quality data for training, top-tier talent for algorithmic breakthroughs, and massive computing resources to power models. These elements, long controlled by industry giants, have made investors cautious about backing smaller players, limiting the growth of startups. 

However, DeepSeek’s success has shattered the myth that China’s tech innovation is confined by resource constraints. It has proven that algorithmic innovation can deliver breakthrough value even with limited computing power, opening new technical pathways for the AI industry and providing early-stage Chinese tech firms with access to structured funding and resources. 

More importantly, this shift has not only energized the AI sector but also spurred growth across the broader tech supply chain. Companies like SMIC (chip manufacturing), Cambricon (AI hardware), and Hygon (computing architecture) are poised to benefit from this wave of innovation. 

With technological breakthroughs, shifting capital flows, and a reshaping market landscape, China’s tech industry is entering a new era of openness and sustainable growth. 

Policy Tailwinds Fueling Innovation 

Since the establishment of a 60.06 billion yuan national AI industry investment fund in January, local governments have accelerated their efforts to support the sector. For example, Zhejiang Province, home to DeepSeek, aims to cultivate 3,000 AI firms by 2027, with total revenue exceeding 1 trillion yuan, while encouraging cities and counties to set up sub-funds to provide more financial support for tech companies. This top-down push is creating a more favorable environment for industry growth. 

Meanwhile, on February 7, China’s securities regulator introduced a series of policies to support high-quality tech firms in sectors like IT, AI, and new energy, facilitating IPOs, bond issuances, and M&A activities. The policies also encourage private equity investment in early-stage startups and provide clearer guidance on valuations and profit expectations for AI firms, reducing market uncertainty and directing capital toward promising projects. 

Adding to the momentum, a February 17 meeting with private entrepreneurs sent a strong signal of support for innovation. Against the backdrop of potential escalation in U.S.-China trade tensions, the meeting underscored the government’s commitment to private enterprises and technological advancement. 

From funding support and capital market reforms to bolstering business confidence, these measures are converging to drive more stable growth in the tech sector. As capital continues to flow in, high-tech industries like AI are poised for a new wave of expansion, offering not just opportunities for businesses but also a potential catalyst for China’s transition to higher-quality economic growth. 

Looking Ahead: Opportunities and Challenges 

This transformation, driven by technological breakthroughs, capital inflows, and policy support, is reshaping global investors’ perspectives, with “China Alpha” becoming a focal point. However, before diving headfirst into Chinese tech, traders should remain mindful of several risks. 

First, the recovery of Chinese risk assets remains uneven, with significant divergence across sectors. For instance, while AI and tech stocks in Hong Kong are surging, other sectors are lagging. Excluding the Hang Seng Tech Index, the broader Hang Seng Index has gained only 3% year-to-date, highlighting the market’s narrow breadth. Additionally, despite $17 billion in southbound inflows this year, most capital has flowed into IT and communication services, while consumer and traditional sectors have seen limited interest. This concentration could undermine the sustainability of the rally. 

Second, China’s economy still faces structural challenges, including deflationary pressures, weak consumer demand, and a sluggish property market. With policy uncertainties ahead of key government meetings, broader market recovery may be constrained in the short term. 

Lastly, the potential return of Trump to the White House poses trade policy risks. Campaign rhetoric about imposing 100% tariffs on chips, tightening antitrust scrutiny, and further restricting NVIDIA’s exports to China could disrupt supply chains and dampen market sentiment, even as it accelerates China’s push for semiconductor self-reliance in the long run. 

Of course, markets never move in a straight line. Despite the uncertainties, we are in a high-volatility, high-opportunity environment. In this game, there are no absolute rights or wrongs—only the ability to accurately gauge technological shifts, policy tailwinds, and capital flows. And in this revolution, the ultimate winners won’t be those who understand technology best, but those who master the art of capturing volatility.