Following China’s annual “Two Sessions” gathering in Beijing earlier this month, national leaders reaffirmed their commitment to integrating technological and industrial innovation, aiming to unlock the “creativity of the digital economy”.
It builds on the ripples China has made in global markets this year. Namely, DeepSeek’s latest AI model, unveiled in January, has reinforced China’s status as a serious contender to Silicon Valley in the global tech race.
“Chinese equities had already rallied strongly before the DeepSeek model reveal in January reminded everyone that China’s tech sector is a formidable rival to Silicon Valley,” a recent market note from Robeco detailed.
DeepSeek, the Chinese AI start-up and developer of open-source large language models, has demonstrated that the country’s private sector is capable of developing leading-edge AI technology.
“DeepSeek really shocked markets in late January. It showed the world that Chinese entrepreneurship and the private sector can really develop leading-edge AI models, and that’s brought a lot of optimism,” Betashares investment strategist Hugh Lam told InvestorDaily.
“They’re going all in.”
The government’s focus on AI and software could prove a structural advantage. While US hyperscalers like Amazon, Alphabet, and Microsoft are pouring up to a combined US$255 billion into AI technologies and data centres this year, DeepSeek has shown that more can be achieved with fewer resources.
“What China has really shown is that software really could be a key advantage for them, because, again, DeepSeek is really trained on, probably cheaper, slightly less efficient Nvidia chips. So it showed that more can be done with less,” Lam said.
“Any companies that have or utilise software applications can really benefit.”
China’s government has also outlined plans to introduce new structural monetary policy instruments to support the real estate sector and the stock market, alongside a “people-centred” approach to economic policy.
“They’ve really announced a quite proactive fiscal policy and accommodative monetary policy,” Lam said.
“There’s a lot of ultra-long bond issuances that they’re planning to do from the fiscal side, and from a monetary policy perspective, they’re quite willing to ensure that finance and costs are reduced, so that people and businesses can borrow, hopefully, at lower rates in the future.”
The Hang Seng and MSCI China indices have reflected this renewed optimism, with returns between 20 and 18 per cent year-to-date.
Chinese tech firms like Tencent and Alibaba Group Holding have also seen substantial gains, up 22 per cent and 62 per cent, respectively.
“These are quite huge increases in their share prices in less than three months,” the investment strategist said. “Again, it’s really coming back to that AI narrative, that technology narrative.”
“This is a structural theme that we’re quite positive on. We are looking forward to the rest of the year to see what the Chinese government can do further.”
Despite these gains, broader economic challenges do persist. Consumption remains a key factor in China’s recovery and investors are watching to see if domestic spending rebounds.
“So consumption is probably the key driver of whether we are going to be optimistic … We really have to see if the consumer can revitalise,” Lam said.
“Once we see those sorts of areas improve, that will improve sentiment and then encourage Chinese people to start spending. When that happens, then that would be good for the broader economy.
“Right now, I think within Chinese equities, that technology sector has already been beneficiaries already and we are quite constructive on that thematic.”
Much of the market’s trajectory will depend on whether China follows through on its ambitious policy agenda.
“A lot of the rhetoric from Two Sessions has been on a willingness to do these things. So we really have to see whether they actually pull through on it,” Lam said.
For now, the Chinese tech sector is leading the charge and investors are taking notice. As the country continues to position itself as a leader in AI and software innovation, Lam said the coming months will be crucial in determining whether China’s bold ambitions can translate into sustained growth and global competitiveness.
