China’s Tech Resurgence Sparks Investor Interest, But Risks Remain
After years of turmoil, Chinese tech stocks are making a dramatic comeback, igniting investor interest worldwide. The Hang Seng Tech Index has surged 32.1% in 2025 amid renewed optimism, despite ongoing US tariffs and economic challenges.
The rally gained momentum after DeepSeek’s AI breakthrough, likened to China’s “Sputnik moment”, and Jack Ma’s return to the public eye. These events signal a potential end to Beijing’s regulatory crackdown on tech giants, giving investors fresh confidence.
But with valuations still low and risks lingering, analysts caution against blind optimism. Where should investors place their bets, and what are the risks?
DeepSeek and the AI Boom: A Game-Changer for Chinese Tech?
The surge in Chinese tech stocks began on Jan 20, when Hangzhou-based DeepSeek unveiled R1, a ChatGPT rival that reportedly delivers similar performance at a fraction of the cost. The development shattered the narrative of China’s reliance on Western chips, showing the country can still innovate under US restrictions.
Wang Zichen, a research fellow at the Center for China and Globalization (CCG), calls DeepSeek a disruptor that opens new doors for China’s domestic semiconductor industry.
The AI-fueled rally gained further steam on Feb 17, when President Xi Jinping met with top tech leaders, including DeepSeek’s Liang Wenfeng and Alibaba’s Jack Ma. Many see this as an official green light for tech sector growth, with analysts now dismissing the possibility of further crackdowns.
Cheap valuations add to the appeal—many Chinese tech giants are trading at just 11-15 times earnings, compared to 26 times earnings for the S&P 500.
Which Sectors Are Poised for Growth?
Industry experts see three key sectors leading China’s tech rebound:
1. Semiconductors: China’s Answer to TSMC?
China’s semiconductor industry is in the spotlight, led by SMIC (Semiconductor Manufacturing International Corporation), widely seen as the mainland’s version of TSMC.
Veteran investor Wong Kok Hoi, founder of APS Asset Management, is bullish on SMIC, a stock he has held for over a decade. SMIC’s shares have jumped 73.3% in 2025, fueled by optimism over China’s push for self-sufficiency in chips.
Wong believes the next big breakthrough will be in extreme ultraviolet (EUV) lithography, a crucial chip-making technology currently dominated by Dutch company ASML. If China succeeds in developing its own EUV machines, Wong predicts a game-changing shift in global tech.
2. Cloud Computing: The AI Fuel
With the explosion of AI-powered applications, China’s cloud computing sector stands to benefit.
Alibaba has pledged to invest 380 billion yuan (US$70 billion) in cloud computing and AI over three years.
Tencent has introduced a faster AI model than DeepSeek’s R1.
Baidu is integrating DeepSeek into its search engine.
Alibaba’s stock has soared 56.8% in 2025, driven by investor enthusiasm over its AI and cloud expansion. However, analysts caution that cloud profits still pale in comparison to Alibaba’s e-commerce business, limiting its short-term impact.
3. Electric Vehicles (EVs): AI-Powered Smart Cars
China’s EV industry is leveraging AI to enhance autonomous driving features, making it another big winner.
Pictet’s Chen Dong notes that BYD, China’s largest EV maker, is now offering free self-driving features on most of its models—including budget-friendly options. This signals AI’s rapid commercialization in daily life.
However, the EV sector remains crowded, and analysts warn that many brands will not survive ongoing industry consolidation.
What Are the Risks?
Despite the bullish sentiment, there are still key risks that investors need to consider:
US-China Trade War:
Fresh US tariffs on China (announced on Mar 4) and Beijing’s swift retaliation could escalate tensions, potentially hurting investor confidence.
China’s Economic Slowdown:Tech Monetization Uncertainty:
Weak consumer spending and slow economic growth remain concerns, despite the government’s 5% GDP target.
While AI is exciting, monetization remains a challenge. Baidu’s decision to make Ernie Bot free from Apr 1 raises questions about LLMs’ ability to generate profits.
Robert Lea of Bloomberg Intelligence warns that LLMs are a highly commoditized sector, making it difficult to turn AI models into sustainable revenue drivers.
Moreover, while tech regulations have eased, analysts say the crackdown has permanently changed how investors assess risk.
“Institutional investors will likely demand a valuation discount to compensate for China’s past unpredictability,” says Assoc Prof Ben Charoenwong of Insead.
How Should Investors Play the Market?
For those looking to capitalize on China’s tech resurgence, experts recommend selective stock picking with a focus on:
Alignment with government priorities (semiconductors, AI, EVs)
Low dependence on US technology
Strong free cash flow and sustainable earnings
Pictet’s Chen also advises choosing companies with dividend payouts or stock buybacks as a safety net in case of market turbulence.
For diversified exposure, investors are turning to ETFs such as the Lion-OCBC Securities Hang Seng Tech ETF, which has been the top-traded ETF on the Singapore Exchange since January.
Additionally, Singapore has launched Depository Receipts (SDRs) for Meituan and Xiaomi, allowing investors to gain exposure to China tech without direct mainland risks.
Final Verdict: A Long-Term Game
China’s tech resurgence is real, but investors need patience.
The country is shifting from scaling existing solutions (“1 to n” growth) to creating original innovations (“0 to 1” breakthroughs). DeepSeek’s AI, SMIC’s semiconductor growth, and the rise of self-driving EVs are early signs of this transformation.
As CCG’s Wang Zichen puts it:
“It would not be prudent to bet against Chinese innovation.”
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