The Chinese technology sector has shown strong growth in early 2025, as reflected in the Hang Seng Tech Index’s nearly 30% increase year-to-date. This rally, supported by technological advancements and favorable government policies, marks a notable development in China’s tech landscape.
The sector’s recovery has led to gains among major companies such as Baidu, Xiaomi, and Alibaba. Even some traditionally non-tech industries, such as telecommunications, have benefited from the increasing adoption of new technologies. This article will explore the factors contributing to this shift in China’s technology sector and its broader implications for the country’s digital economy.
Policy reset signals new era
President Xi Jinping’s February 2025 meeting with tech entrepreneurs marked a pivotal moment in China’s economic strategy. This first-of-its-kind gathering since 2018 signalled a dramatic shift from regulatory crackdowns to active support for innovation, directly addressing prior concerns over heavy-handed oversight.
This shift was exemplified by Xi’s public endorsement of Alibaba’s Jack Ma, whose visibility had diminished following high-profile antitrust investigations. The public reconciliation with Ma, whose previous absence had symbolized broader constraints on the tech sector, sent a powerful message to global investors: China is now fully committed to technological advancement and fostering an environment conducive to innovation.
AI innovation
DeepSeek’s R1 AI model, launched in late January 2025, emerged as a transformative catalyst for the Chinese tech sector. The model rivalled the performance of OpenAI’s ChatGPT while operating on older, less advanced hardware at a fraction of the cost. This showcased China’s remarkable ability to innovate and develop cutting-edge AI capabilities despite the restrictive U.S. export controls on advanced semiconductors.
The R1’s open-source architecture further accelerated its adoption across various industries—from Chinese automaker Great Wall Motor integrating it into its ‘Coffee Intelligence’ vehicle system to telecom firms leveraging it to optimize network operations. This success highlighted China’s progress in developing homegrown alternatives to Western technologies. Many analysts now believe that DeepSeek’s breakthrough has effectively repositioned Chinese tech firms as strong competitors in the global AI race, helping to alleviate concerns about the country’s reliance on foreign innovation.
The release of the R1 model set off a ripple effect across the Chinese tech landscape. Alibaba’s stock surged more than 50% in less than a month following the debut of its own Qwen2.5-Max AI model. Even traditionally non-tech sectors, such as BYD’s electric vehicle business, benefited as they expanded AI applications, with the stock reaching a record high. These broader gains reflect a growing trend in which AI integration is becoming a key valuation metric, mirroring patterns seen in the U.S. tech market during the ChatGPT boom.
DeepSeek’s R1 success has significant implications for global technology competition. By matching the performance of leading Western AI models while running on more affordable, older-generation hardware, China has demonstrated technological self-sufficiency and resilience despite U.S. export restrictions. This milestone aligns with President Xi’s vision of “innovation sovereignty” and reinforces China’s position in the evolving multipolar tech landscape.
Market revaluation
Chinese stocks had struggled for years, weighed down by regulatory crackdowns, property market crises, and COVID-19 disruptions. While Chinese tech stocks have risen sharply, the overall Hang Seng Index is still trading at a P/E ratio of just 17, while the Shanghai Composite Index stands at 14—a steep discount compared to the S&P 500 Index at 29.
However, this trend began to shift with the launch of DeepSeek’s R1 AI model. The rally in Chinese tech stocks coincided with a broader reallocation of investments into emerging markets. While U.S. equities faced headwinds from high valuations and policy uncertainty under the new Trump administration, China’s tech sector suddenly appeared more attractive in terms of relative value. This shift drew interest from both institutional investors and retail traders seeking exposure to AI-driven growth opportunities.
The resurgence of Chinese tech stocks reflected renewed confidence in the country’s ability to innovate and develop self-sufficient technological capabilities, as evidenced by the success of the R1 model. Investors were attracted by the potential for Chinese firms to leverage these AI tools to drive growth across various industries, positioning them to compete more effectively with their Western counterparts. This shift in sentiment marked a turning point for the Chinese tech landscape, setting the stage for a sustained recovery after years of underperformance.
The fifth perspective
The surge in Chinese tech stocks marks a key milestone in the country’s technological advancement. The success of DeepSeek’s R1 AI model, which demonstrated performance comparable to leading Western systems while running on more affordable hardware, has fuelled a notable shift in sentiment regarding China’s innovation capabilities.
This milestone aligns with President Xi’s vision of ‘technological sovereignty’ and strengthens China’s position as a key player in the evolving global tech landscape. The rapid adoption of the R1 across industries has showcased the country’s ability to develop self-sufficient technological solutions, reducing its reliance on foreign innovation.
While challenges remain, the ongoing transformation in China’s tech sector suggests sustainable momentum. Investors are increasingly attracted to the growth potential of China’s AI-driven innovation and the possibility that Chinese firms could gain a competitive edge over their Western counterparts.
After years of negative sentiment, it may be time to reassess the opportunities emerging from China’s technological progress. The recent surge in Chinese tech stocks reflects the country’s strengthening position in the global technology landscape, with the potential to play a significant role in shaping the future of the digital economy.
