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China's stock market shows resilience as Beijing commits billions to AI

Published: 07 Apr. 2025, 14:54 Updated: 07 Apr. 2025, 15:31

A screen displaying the Hang Seng stock index is seen in Hong Kong on April 7. [REUTERS/YONHAP]

China's stock market has shown resilience despite various economic challenges, bolstered by its appeal in pricing and the downturn in U.S. equities. A significant driver behind this trend is the global recognition of China's advancements in AI. Many analysts believe that Chinese AI firms are still in the early stages of their growth trajectory.

At the recent National People's Congress, the Chinese government identified 10 strategic industries for future development, signaling a commitment to substantial investments. These sectors include AI, embodied intelligence, smart devices such as robots, urban air mobility, the digital economy, eco-friendly connected vehicles, quantum technology, 6G telecommunications, commercial aerospace and biotechnology. The research and development budget has been increased by 10 percent from the previous year to 398.1 billion yuan ($54.5 billion), and a 1 trillion yuan fund for high-tech startups is set to be established.

The stock market has responded positively to these initiatives. As of Thursday, the Hang Seng Index, representing 50 major Chinese companies, rose by 16.44 percent since the beginning of the year. The Hang Seng Tech Index, which includes 30 technology-focused growth stocks, experienced a 21.93 percent increase in the same period. In contrast, the Nasdaq 100 Index, dominated by U.S. tech stocks, declined by 11.7 percent during the same period.

Shin Seung-woong, a researcher at Shinhan Securities, noted that when the Chinese government designates an industry for development, it typically maintains that focus for 10 to 15 years, suggesting continued support for big tech companies.

Chinese AI companies have demonstrated notable capabilities. In March, Chinese startup Monica introduced Manus, an autonomous AI assistant that outperformed OpenAI's Deep Research in certain benchmark tests. Tencent's reasoning AI model T1, unveiled in late February, offers faster inference speeds at lower costs than DeepSeek R1. Baidu's Ernie X1 has surpassed OpenAI's GPT-4.5 in various metrics while maintaining user fees at just 1 percent of its counterpart.

Despite these advancements, experts say Chinese tech stocks remain undervalued. The market capitalization of the “Terrific 10,” China's leading tech firms, constitutes only 6.5 percent of the nation's GDP, whereas the “Magnificent 7” — made up of Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla — account for 58.7 percent of the U.S. GDP. The Hang Seng Tech Index has only recovered to 48.54 percent of its peak on Feb. 17, 2021.

Shinhan's Shin noted that the index's current 12-month forward price-to-earnings (P/E) ratio stands at 17 to 18, below the five-year average of approximately 24.

Cho Chul-gun, a senior researcher at NH Investment & Securities, believes that considering recent quarterly performances and AI-related results, there is potential for medium- to long-term growth in Chinese tech stocks.

Within China's AI ecosystem, the midstream sectors — made up of platforms, cloud services and APIs — and downstream sectors — robots, fintech and health care — are gaining attention. Unlike the upstream sectors of semiconductors and GPUs, which saw significant stock appreciation last year, the midstream and downstream sectors offer diverse development paths and high-value creation, suggesting further growth potential. Experts recommend investing in leading companies within these sectors.

Tencent exemplifies this potential. With approximately 1.2 billion users on its social media platforms WeChat and QQ, Tencent leverages vast amounts of data to optimize its AI model Hunyuan, applying it across social media, gaming and health care services. The company benefits from diverse revenue streams, including gaming, advertising and cloud services.

Alibaba, the top e-commerce and cloud computing firm in China, utilizes its proprietary large language model to integrate AI across e-commerce, logistics, customer service and enterprise cloud solutions. Notably, Alibaba's 12-month forward P/E ratio is between 12 to 13, indicating potential undervaluation.

RoboSense, the global leader in lidar sensors essential for autonomous driving and robotics, is also noteworthy. The company has secured significant supply contracts with major Chinese electric vehicle manufacturers like BYD, Xiaopeng and Xiaomi, rapidly increasing its market share. SMIC, China's largest chip foundry, is pivotal for the country's semiconductor self-sufficiency, especially in light of U.S. export restrictions.

For those considering investments in China, assembling a portfolio of exchange-traded funds (ETFs) across six sectors — technology, internet, AI, robotics, cloud computing and fintech — may be a strategic approach. This method could yield higher returns than ETFs tracking the Hang Seng Tech Index alone and allows indirect access to mainland Chinese stocks that are otherwise unavailable to foreign investors. Notable ETFs in these sectors include KraneShares Hang Seng Tech. KraneShares CSI China Internet, E Fund Artificial Intelligence, ChinaAMC CSI Robot, E Fund CSI Cloud Computing & Big Data and Hwabao WP CSI Fintech Theme.

Chinese President Xi Jinping applauds at a meeting with foreign business leaders at the Great Hall of the People in Beijing on March 28. [REUTERS/YONHAP]

Risks still remain for investors in Chinese markets. One is the continued weak domestic consumption. Household savings in China are estimated at between 15 and 20 trillion yuan, far outweighing outstanding loans, which are below 5 trillion yuan. This gap reflects subdued consumer sentiment. Without a clear recovery in demand, corporate revenues may struggle to grow.

Another concern is U.S. regulatory pressure, particularly under the Donald Trump administration.

Park In-geum, chief researcher at NH Investment & Securities, said the impact of U.S. tariffs is likely to delay a rebound in China’s Producer Price Index — often seen as a sign of economic recovery — until early next year.

Choi Seol-hwa, a researcher at Meritz Securities, noted that most Chinese AI products are still geared toward the domestic market, and it remains uncertain how well they will perform overseas.

“DeepSeek has shown that Chinese companies are capable of overcoming even U.S. regulatory hurdles on their own. It may take time, but they will be able to respond to challenges,” Choi said.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.

BY HEO JEONG-WON [[email protected]]