Policymakers have heavily leaned into tech and innovation as part of the national development strategy. Tech was the top priority for China in the 14th Five-Year Plan (FYP), and remains a prominent part of China’s growth strategy in the 15th FYP.
Increased sanctions targeting Chinese companies have strengthened the tech self-reliance drive, spurring the creation of domestic champions. Once seen as a one-horse race in which the US was preordained to win the AI race, China’s breakthroughs this year prompted some to reevaluate.
China’s tech push has had numerous real-world implications:
- China’s fastest-growing trade categories are often tech-related. In the first 10 months of the year, hi-tech imports rose by 14.1% YoY to $79.5bn, while hi-tech exports rose 6.8% to $684bn. Prior investment in EVs has made China not only the world’s largest producer and exporter of EVs, but also its largest consumer.
- Many tech-related sectors have been attracting the most investment in recent years, and growth has remained solid despite the overall weak investment environment. Aside from the EV, battery, and semiconductor industries, which we often discuss, China’s grid investments in power data centres have also risen 10% YoY YTD in a year of otherwise soft investment.
- The tech race has increased the need for China to improve its domestic semiconductor industry. This has translated into a 35.3% YoY YTD uptick in semiconductor manufacturing equipment imports through 3Q25, while direct semiconductor imports have risen only 8.8% YoY YTD. The recent buildup of China’s domestic industry has also made semiconductor exports one of its fastest-growing categories, up 23.4% YoY through 10 months of 2025.
- China’s tech sector has outperformed equities amid the rally of the past year. At the time of writing, the Hang Seng Composite Index’s IT subindex is up 51.9% on a 12-month basis, outperforming the HSCI’s 37.2% return over the same period.
There have been numerous positive developments in China’s hi-tech sector. In addition to the rising focus on semiconductor self-sufficiency, which has driven strong production and trade growth, we also saw some progress on the innovation front.
On AI, the “Deepseek moment” gathered the most attention abroad and illustrated the fruits of China’s AI push. The China Academy of Information and Communications Technology (CAICT) estimates that the AI industry surpassed RMB 900bn in scale in 2024. The “Eastern Data, Western Computing” initiative, launched during the 14th Five-Year Plan, drove over RMB 1 trillion in investment and now supplies about 80% of the national intelligent computing capacity. We still see private-sector enthusiasm, too, including Alibaba’s plan to invest RMB 380 billion in cloud and AI infrastructure over three years.
Robotics has also been an area of strong growth. Industrial robot and service robot production were up 28.8% and 20.0% YoY YTD in October, respectively. China’s so-called “dark factories” are examples of robotics helping to automate production to an extent where human activity is minimal, allowing the factories to operate in the dark. Recently, Xpeng’s Iron robot went viral for its humanlike movements. We’ve seen a variety of new robot functionalities this year, including robots acting as baristas, popcorn servers, boxers, and even performing surgeries.
At the same time, this imbalance raises the question of what the impact would be on China’s economy if it lost the AI race or if AI or tech exuberance faded?
At the time of writing, more market participants have been debating whether the AI exuberance has gone too far and whether we’re now facing a second dotcom bubble.
During China’s National Urban Work Conference, the central government highlighted concerns about local governments’ excessive investment in AI, computing power, and new energy. Similar to previous strategic industries, though, this strategy can result in the emergence of national champions. This may raise the risk of over-competition and poor resource allocation, especially as banks are called upon to support the national strategy.
The National Development and Reform Commission also recently issued a warning on potential bubble risks for the humanoid robotics industry, citing the large number of similar robots under production across multiple companies, and vowing to speed up efforts to build mechanisms for market entry and exit to facilitate an environment for fair competition.
Winning the tech race would provide the most obvious catalyst for securing China’s long-term growth trajectory. This is clearly spelt out in China’s 15th FYP, which calls on tech and innovation to create more “new quality productive factors”. At the same time, it’s wise not to put all the eggs in one basket, so to speak. Setbacks could result in numerous failed investments and further hits to sentiment.