China’s technology sector is experiencing robust growth, though geopolitical challenges continue to pose risks. Stocks have reached three-year highs, fueled by optimism surrounding DeepSeek—China’s answer to OpenAI—and strong earnings from leading companies. However, Tuesday’s market declines, sparked by former U.S. President Donald Trump’s latest executive order, underscore the persistent threat of global trade tensions.
Recent performance has been impressive. Alibaba, a key player benefiting from the AI boom, reported quarterly revenue of $39 billion, surpassing expectations. Similarly, Lenovo and Xiaomi posted strong earnings, boosting the Hang Seng Tech Index. As with U.S. tech companies, investor enthusiasm for AI advancements has driven valuations upward.
Capital investments are accelerating. Alibaba plans to invest $53 billion in cloud computing and AI infrastructure over the next three years. Huawei is advancing in AI chip production, bolstering China’s efforts to achieve technological self-reliance despite U.S. restrictions on semiconductor exports.
Nevertheless, volatility remains. Alibaba’s stock had climbed 70% this year before Trump’s executive order—aimed at limiting Chinese investments in critical U.S. industries—triggered a 10% drop in its American depositary receipts, marking the worst single-day loss since October 2022. Trump’s administration is also considering stricter export controls on advanced technologies, raising the specter of escalating trade conflicts.
The situation echoes Trump’s first term, when U.S. measures targeted Chinese companies, including mandates for foreign firms listed in the U.S. to comply with American auditing standards or face delisting. Chipmakers were also subject to sanctions and tightened export controls.
What sets this period apart is the resurgence of domestic demand for Chinese equities. During the market downturn beginning in late 2020, mainland investors were net sellers of Hong Kong-listed stocks, intensifying foreign capital outflows. This year, mainland Chinese funds have reversed course, with net purchases of Hong Kong-listed equities exceeding $1.1 billion in a single day and total inflows approaching $30 billion.
The recent tech rally was fueled not only by strong fundamentals but also by expectations that geopolitical tensions would remain in the background. This week’s market slide suggests that investors may have underestimated the continued impact of global political developments.
