China signals shift towards tech sector, but experts warn of caution

A simple handshake between President Xi Jinping and once-shunned entrepreneur Jack Ma sent Chinese tech stocks booming in recent weeks as it was interpreted as the latest sign the sector is being brought in from the cold – though experts advise caution.

Beijing launched a regulatory blitz on the industry in 2020 that triggered a massive sell-off, wiping hundreds of billions of dollars from major tech firms’ market value.

But there are increasing signals that it is adopting a friendlier attitude, as domestic economic woes persist and leaders nervously eye a heightened trade war with the United States.

“Beijing cannot accomplish its national ambitions of technological independence from the United States and ultimate dominance of cutting-edge technologies without the private sector,” Shehzad Qazi, managing director of China Beige Book, told AFP.

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The shock release in late January of a sophisticated AI chatbot by Hangzhou-based start-up DeepSeek – which matched US rivals’ performance seemingly at a fraction of the cost – could be seen as a stark example of that.

DeepSeek was praised by authorities, with its founder also present at the high-level business symposium where Xi met Ma in Beijing nearly two weeks ago.

Xi’s warm greeting of the Alibaba co-founder, who had stayed out of the spotlight since making disparaging comments about the nation’s regulators in 2020, is “the latest sign of China more firmly aligning private enterprises with the (Communist) Party’s economic and national security ambitions”, said Qazi.

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But he warned that “Beijing isn’t interested in helping companies produce record-breaking earnings or spurring mega rallies in the stock market”.

“The outlook for private enterprises is not nearly as bright as the recent market optimism would have you believe,” he said.

Observers are keenly awaiting a key annual political gathering in Beijing in the coming days, in the hope it might show whether the government’s recently warmed attitude will translate into concrete actions.

Enter AI

A softening towards the tech sector has been under way since 2023, with regulators taking a more supportive stance in a bid to revive business confidence.

China has struggled to meet official growth goals over the past few years as the world’s number two economy is beset by a property sector crisis and sluggish consumption.

Stimulus measures unveiled last year are slowly taking effect, but a threatened trade war with US President Donald Trump’s new administration could cause further economic instability.

With hurdles yet to be overcome, Beijing is now eyeing tech products – AI in particular – with renewed interest.

“In theory, AI can help China break through stagnation and deflation” in addition to solving the future labour crunch caused by the country’s declining population, analysts at ANZ Research wrote in a recent note.

The symposium of business leaders, they wrote, showed that adoption of AI in China now stands to be further accelerated by revamped policy support.

Local authorities across the country have in recent weeks issued orders to promote the use of AI tools such as DeepSeek to assist in governance.

“DeepSeek’s success in AI has revived investor hopes for broader AI adoption and increased enterprise demand in China,” said UBS in a note.

The DeepSeek phenomenon has also ignited an intense race within the domestic industry to develop advanced chatbots, with Tencent’s release Thursday of its Hunyuan Turbo S model representing the newest contestant.

Tencent claims the new model’s instant responses differentiate it from DeepSeek, which it said needs to “think before answering”, resulting in slight delays in generating results.

‘Moment’s notice’

In a move to reassure the business community, Chinese lawmakers last month advanced a draft law on the private sector that the state-backed Global Times said would “cement legal protection” for firms.

But analysts say a private-sector boom will only be encouraged as long as it aligns with Beijing’s strategic objectives.

During the 2010s tech giants were allowed to rapidly grow, but the Communist Party has historically been wary of runaway private-sector expansion.

The recent gathering with entrepreneurs has echoes of a similar one held in 2018, when Xi told business leaders he was there to “boost (their) confidence”.

Two years later Beijing launched its flurry of anti-monopoly and anti-competition charges against the firms.

“Investors appear to have interpreted (the meeting with Xi and Ma) as a signal that the government’s pivot towards greater private-sector freedom, which has been underway since 2023, is set to be sustained,” wrote James Reilly, a senior economist at Capital Economics.

However, he added that the “lack of checks and balances in China means that this attitude shift towards the tech sector could reverse at a moment’s notice”.