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China’s high-tech sector is thriving. Stocks are at a three-year high, driven by optimism towards deepseek, homemade answers to openness and strong corporate profits. However, Tuesday’s decline, caused by Donald Trump’s latest executive order, serves as a clear reminder that geopolitical risks remain a permanent force in the Chinese stock market.
The meeting was well-founded. Alibaba, the leading beneficiary of the artificial intelligence-driven surge, reported high returns as revenue rose to $390 billion in the latest quarter. Revenues at local fellow Lenovo and Xiaomi also beat expectations, earning profits at the Hang Seng Tech index. Throughout the Pacific, high hopes for AI are driving a reputation upward.
It prompted an increase in investment. Alibaba has pledged to spend aggressively $53 billion on cloud computing and AI infrastructure over the next three years. Peer Huawei is advancing the production of AI chips. Even as the US tightens its restrictions on semiconductor exports, Beijing is stepping up its self-sufficiency initiative to restore the technology sector to external pressure.
It continues before and after. Alibaba won 70% this year until a Trump order, which aimed to curb China’s investment in key US industries, knocked out 10% of the company’s US deposit receipts. This marked Tuesday’s worst day in stocks since October 2022. Trump’s team is weighing even more severe chip export restrictions than what is currently in existence, indicating a potential escalation of trade tensions.
This is no surprise. During Trump’s first term, Chinese technology rally targets Chinese companies, including obligations to require US-listed foreign companies to comply with US audit standards and to comply with risks of repeal. It was cut short by a series of US measures. The US has also imposed sanctions on shipmakers and strengthened export controls on advanced technology.
The difference this time is the depth of local demand for stocks. At the peak of China’s sale, which began in late 2020, mainland funds were net sellers of Hong Kong-listed stocks, exacerbating foreign capital exit notes, particularly in technology. This trend has reversed this year. Net purchases of Hong Kong-listed stocks from mainland China have skyrocketed to over $1.1 billion in a day, pushing inflows to nearly $300 billion this year.
Recent rallies in China’s tech stocks were not about the basics. They also bet that geopolitical tensions, while persistent, would remain in the background rather than determining the direction of the market. This week’s slide suggests that the assumption was overly optimistic.
june.yoon@ft.com
