China's technological opportunities

The three themes driving Chinese innovation

China’s opportunity set is expanding beyond traditional index heavyweights, powered by three reinforcing themes. At home, a push for self-sufficiency is building strength. Globally, China is moving into more advanced technological areas. And at the same time, the country is establishing itself as a leader in electrification and alternative energy.

1. China's more technological exports

China has transitioned from the factory floor to the technology frontier, with AI and high-end industrials leading the way. China’s exports have expanded at a double-digit pace over the past year¹. Higher value-added sectors, including integrated circuits and the “new trio”—electric vehicles, lithium-ion batteries, and solar cells—are showing momentum. The export portfolio is becoming more sophisticated and technology-intensive, signaling both a structural upgrade in capability and deeper integration into global innovation cycles. State support laid the foundations for this shift, especially in areas like solar and EVs, but the success of many of these companies – and the investment opportunities – come from a genuine corporate competitiveness.

Chart 1: China exports supported by electronics & "new trio"

Additionally, surging global demand for AI is driving growth across the entire supply chain. China is scaling the full AI stack beyond hardware, including models, infrastructure, and applications, with domestic models advancing rapidly in performance and cost efficiency. Lower inference costs are driving broader AI adoption and positioning China as a key contributor in the AI ecosystem.

As demand outpaces near-term capacity expansion, Chinese companies, particularly those providing essential “picks and shovels,” are seeing volume growth, pricing resilience, and increased international visibility. By simultaneously expanding capacity and upgrading capabilities, they are well positioned to reach more customers and capture global market share.

2. "China to China": advancing localization

Alongside its growing global footprint, China is building a more self-sufficient and vertically integrated domestic technology ecosystem.

Innovations such as the large language model DeepSeek V4² — built on domestically produced graphics processing units (GPUs) — highlight improving depth in core technologies and a gradual easing of reliance on external bottlenecks. At the same time, progress in semiconductors, manufacturing equipment, and AI infrastructure is advancing, fostering the broader adoption of locally developed solutions.

This creates a self-reinforcing cycle: as domestic capabilities improve, adoption increases, which further drives scale, innovation, and cost efficiency. This cycle boosts China’s self-sufficiency and enhances its system-level competitiveness, enabling local ecosystems to evolve rapidly, with greater resilience and independence.

Chart 2: China wants more growth from new industries & technologies

Value-added of "new industries, new formats, new business models" (NBS "Three New" economy)

3. China's leading role in power and automation

China is playing an increasingly important role in several critical enablers of the next technological cycle, including automation, robotics, and alternative energy solutions.

In 2025, global robot shipments surpassed 22,000 units, with Chinese companies accounting for over 80% — demonstrating both scale and advancing technological expertise³. Robots are now being adopted in a wider range of settings beyond traditional manufacturing in China, driven by improvements in AI models and data training that are boosting robot intelligence and enabling more complex, real-world applications across both industrial and service sectors.

Energy is another critical pillar underpinning both technological and industrial advancement. China has established a competitive position in the alternative energy sector, particularly in solar, batteries, electric vehicles, and the rapidly expanding field of energy storage. Electricity currently makes up almost 30% of China’s total energy consumption, and Chinese manufacturers supply around 70% of batteries globally⁴. China’s advancement in power solutions not only accelerates its own development, but also increases global interest in China’s energy innovation, scale and cost leadership.

Selectivity is key amid investment risks

Opportunities are expanding, and we believe selectivity is increasingly important as the market evolves.

Risks remain part of the backdrop. China’s macro environment is still fragile, with traditional segments of the economy most vulnerable.

Periods of oversupply and the potential roll-back of government subsidies can emerge in fast-growing sectors, and strong revenue growth may not always translate into earnings where pricing and competition are more dynamic, and where open-source models proliferate. As industries scale, outcomes are likely to diverge further, widening the gap between leaders and the broader market. At the same time, China’s shift toward higher value-added industries is expanding the opportunity set. As this transition progresses, performance is likely to be increasingly shaped by company-level fundamentals rather than broad market exposure.

Active management can help identify structural leaders, navigate evolving industry dynamics, and uncover opportunities beyond index heavyweights. Over time, stock selection is likely to play an increasingly important role in driving outcomes.