Artificial intelligence is driving a stock market rally in China, too

Last year, investors in Chinese stocks lurched between euphoria and disappointment as the market swerved in response to the government’s attempts to kick-start growth in China’s sluggish economy.

Now, China’s stock markets are in the midst of another bullish run. Analysts and investors say that this time, rather than being driven mainly by policy changes, the moves are linked to a trend that is also pushing up stocks in the United States and elsewhere: artificial intelligence.

“There has been a resetting of expectations around what the government will and won’t do to stimulate the economy,” said Eric Wong, the founder of Stillpoint Investments, a hedge fund. “That has enabled people to be more comfortable to put money into parts of the economy where they think there is outsized growth.”

The share prices of companies that play a major role in China’s AI industry have grown by triple digits this year. Alibaba, which makes widely used open-source AI systems, has gained more than 120 per cent this year. Semiconductor Manufacturing International Corp., China’s most advanced chipmaker, is up even more, around 180 per cent. Other Chinese tech stocks, including Baidu, Tencent and Xiaomi, are up around 60 per cent this year.

In comparison, Nvidia, the US chipmaker whose central role in the AI boom has made it the most valuable public company in the world, is up about 40 per cent this year.

The AI-driven rally in tech stocks has exerted an enormous influence on broad market indexes in China, as it has in the United States. The MSCI China Index, which tracks the country’s largest companies, has notched gains for five consecutive months. The index is up more than 40 per cent this year, greatly outpacing a similar index for US stocks, which is up about 15 per cent.

The Chinese index has become dominated by tech companies, with Tencent, Alibaba and Xiaomi, the three largest components, accounting for about 30 per cent of the benchmark. In the US, the top three stocks are Nvidia, Microsoft and Apple, worth about a fifth of that index.

For years, China’s stock markets were among the worst performing in the world. Then, in September last year, shares surged after the government encouraged banks to lend more to buyers of stocks and real estate.

In January, stocks began to rally again after Chinese startup DeepSeek jolted the tech world with its claim that it had created a powerful AI model that was significantly cheaper to build than the offerings of its better-funded American rivals.

Since then, Alibaba has released multiple popular AI models. Open-source AI systems made by Chinese companies consistently rank among the top performing in the world. Chinese companies with significant AI and cloud businesses, including ByteDance, Alibaba, Tencent and Huawei, have poured money into infrastructure like data centers.

The Chinese government, too, has financed AI infrastructure and hardware, including data centers, high-capacity servers and semiconductors, as part of a push to become self-sufficient in advanced technologies.

A Xiaomi car at an auto show in Shangha. China’s benchmark stock index is now heavily weighted toward tech, with Tencent, Alibaba and Xiaomi making up roughly 30 per cent of its value.

China “has strong national policy support, vast data resources, sufficient power supply, leading manufacturing capabilities, diverse AI application scenarios and a fiercely competitive private sector,” said Winnie Wu, chief China equity strategist at BofA Global Research, a unit of Bank of America. She described China as the “global runner-up in AI.”

China’s contest with the United States for primacy over AI has only added to the bullish feeling, some investors say. In July, Nvidia said the US government would allow it to restart sales of a China-specific chip.

But Chinese regulators have doubled down on a directive for companies building data centers to buy domestic chips instead. China’s stock markets took that “as a signal that China wants to build its own ecosystem,” said Wong.

Initial public offerings by Chinese tech companies, once blockbusters on Wall Street, have slowed in recent years as the relations between China and the US have deteriorated. And in China, the pace of domestic listings dipped as Beijing pushed to assert greater control over the market.

The recent market momentum is attracting interest from Chinese tech companies looking to go public in Shanghai or Hong Kong.

Last week, the Shanghai Stock Exchange approved the listing of Moore Threads, a Chinese semiconductor company. Unitree Robotics, a startup based in Hangzhou, a tech hub, said last month that it would pursue a listing by the end of the year.

Vey-Sern Ling, an equities adviser based in Singapore at the private bank Union Bancaire Privé, said, “For any Chinese tech company planning to go to the market right now, Hong Kong would be the clear choice.”

This article originally appeared in The New York Times.