China signals support for tech sector, but concerns linger

HONG KONG

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.

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

Xi's warm greeting of Ma, 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.

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.

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.

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 labor crunch caused by the country's declining population, analysts at ANZ Research wrote in a recent note.

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.