China is pushing industrial tech and AI as U.S. tensions and market volatility rise

China’s tech stocks are staying in play even as the U.S. turns up the pressure and global markets get more chaotic. From October 20 to 23, Beijing’s top officials are meeting to lay out their five-year goals, and tech is expected to dominate the agenda.

The country’s government isn’t backing off, despite trade tensions, and analysts believe China’s equity space still has solid ground, mainly in local tech.

According to CNBC, some investment strategists are staying bullish, especially after DeepSeek rolled out its surprise AI model earlier this year. The launch showed the world that China can still compete in artificial intelligence, even with U.S. chip sanctions in place.

Since then, the government has promoted DeepSeek and other local projects as proof of its capabilities and has responded to Washington’s policies with new tariffs, port fees, and export rules.

Beijing focuses on industrial AI as foreign funds stay selective

Liqian Ren, head of quantitative investment at WisdomTree, said optimism toward the U.S. market has a spillover effect on China, and as long as that optimism holds, investors will keep positions in Chinese equities.

Liqian said falling interest rates from the U.S. Federal Reserve are boosting both economies. Ren added that international traders are no longer dismissing China altogether but are beginning to treat it as a longer-term bet, especially in technology.

The optimism around tech started picking up after DeepSeek’s launch. It wasn’t just the surprise that impressed investors; it was the timing too.

The U.S. had restricted chip exports, and yet China still produced a model good enough to be mentioned in the same sentence as OpenAI. That event forced global investors to reevaluate the entire China tech narrative.

Ren explained that Beijing is now putting its money behind industrial applications of AI; stuff like automation, software for factories, and enterprise infrastructure. She called this move a “fundamental shift.”

Sunil Tirumalai, the global emerging markets strategist at UBS, said in a Friday note that the return on invested capital in the MSCI China index has been improving, even when internet stocks like Alibaba are left out. He compared the performance with India, which has mostly gone flat.

Sunil noted that when you include China’s internet companies, returns actually outpace India. The takeaway: China may still offer more upside, especially in industrial and AI-focused equities.

Ren said that trying to figure out whether China or the U.S. will “win” in the tech space is pointless right now. “It’s so long term right now it’s very hard to really draw a conclusion,” she said. But if someone’s investment timeline is long, she believes “it’s still a good time to position.”

Mainland stocks edge ahead as Hong Kong takes a hit

Equities took a dive on Friday after investors reacted to rising concerns about U.S. regional bank loans. The Shanghai Composite lost almost 2%, while the Hang Seng Index fell nearly 2.5%.

That sharp drop added fuel to the idea that mainland-listed shares, often called A Shares, might now be a better hold than stocks traded in Hong Kong.

Laura Wang, Chief China Equity Strategist at Morgan Stanley, said in a late Friday note, “Do not buy the dip yet.” She warned that Hong Kong stocks tend to follow the U.S. market closely and pointed out that the Hang Seng has already jumped more than 25% this year, compared to just over 12% for the S&P 500. That gap could spook traders into cashing out early.

Wang said her team is now “tactically overweight A shares vs. Hong Kong,” mostly because of trade and credit worries. For now, she’s sticking with Chinese companies that show consistent earnings and solid dividend history.

As the leadership summit kicks off, China is expected to release its third-quarter GDP on Monday. Jing Liu, Chief Economist for Greater China at HSBC, said that the next five-year plan will focus on new technologies, especially AI, robotics, biotech, and semiconductors. Her firm’s equity strategy group had already warned earlier in the week about growing market volatility, but said they still expect tech innovation to keep pushing the market up.

Analysts named three specific stocks that they believe will beat earnings estimates: Gigadevice, a semiconductor company in Shanghai; Yonyou, which builds enterprise software, also in Shanghai; and Inovance, a factory automation firm listed in Shenzhen.

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