With fewer legacy constraints than its US counterpart, China’s tech sector is positioned for accelerated expansion.
Year-to-date, China’s Hang Seng Tech Index (HSTECH) greatly outperformed its broader American tech counterpart Nasdaq-100 (NDX) at 45.36% versus 15.44% respectively. In late 2020, following the critical speech of Alibaba’s founder Jack Ma, China started cracking down on its tech sector.
This was unsurprising to followers of elite theory, as “rival castles” are often taken down to secure the dominance of the existing elite, in this case the Chinese Communist Party (CCP). As a result, under the concern of “disorderly expansion of capital”, alongside data security and antitrust focus, Chinese tech companies took a big valuation hit.
However, China’s state-run capitalism, mirroring that in the U.S., ultimately relies on a vibrant tech sector to maintain both economic growth and geopolitical leverage. The regulatory pendulum first swung back in June, with the announcement to ease restrictions on initial public offerings (IPOs).
Likewise, the listing of pre-profit companies on Shanghai’s STAR Market (Science and Technology Innovation Board) would resume, alongside permissions for qualified overseas investors to trade options starting this October. According to Bloomberg data, HSTECH is trading under its 5-year average at 20.5x forward earnings, compared to NDX’s 27x.
Tencent Holdings Ltd. ADR (OTC: TCEHY)
Capital expenditures for AI continue to accelerate in China, again mirroring the Big Tech sector in the U.S. According to a Bloomberg Intelligence report, a total of $32 billion has been committed by Chinese counterparts, starting with Tencent. This may seem minor, given that Alphabet alone committed $75 billion for 2025, but the U.S. tech sector covers the entire world, and especially Europe.
In contrast, China is building a self-reliant tech ecosystem, which is why the rival castle (U.S.) has issues. Similar to Alphabet, Tencent has a large ecosystem spanning advertising, AI data centers, WeChat (integrated social and payments), and gaming.
In Q2, Tencent grew its ad revenue 20% YoY, as the company keeps implementing AI tools and features. Just last week, the company launched its premier AI assistant Yuanbao, which can attend multiple online meetings simultaneously to take notes.
To further diversify its holdings, Tencent is also investing in domestic startups such as Baichuan and DeepSeek, following in Google’s footsteps. Likewise, the company has deep liquidity at around $67 billion in cash reserves to keep expanding.
Xiao-I Corporation ADR (NASDAQ: AIXI)
Having launched its own large language model (LLM) Hua Zang Universal in 2023, Xiao-I has accumulated hundreds of patents related to cognitive intelligence, voice and image recognition, and general conversational AI via iBot Pro platform.
Most recently on Wednesday, the company renewed its strategic partnership with a multinational bank, following other long-term contracts with retailers, insurance firms and domestic banks. However, according to the company’s filings, it is still a pre-profit company.
Accordingly, investors should treat AIXI as a high-risk exposure.
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