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Straits Times
a day ago
- Business
- Straits Times
What China's listing frenzy in Hong Kong means for investors
Listing in Hong Kong means Chinese companies can enjoy the best of both worlds: access to global funds as well as attracting domestic investors. PHOTO: AFP – Chinese companies are lining up in droves to list on the Hong Kong stock exchange, sparking a frenzy in a market that has been forsaken by investors and companies for many years. In May, the world's largest battery maker, Contemporary Amperex Technology, debuted on the Hong Kong Stock Exchange with a HK$41 billion (S$6.7 billion) listing that has been the biggest deal of its kind so far in 2025. It is paving the way for the likes of luxury carmaker Seres, energy drink heavyweight Eastroc Beverage, robotics firm Estun Automation and other Chinese companies to list in Hong Kong in 2025. There are at least 150 so-called AH listed companies – firms that have listings in both mainland China and in Hong Kong – the latest being soya sauce giant Foshan Haitian Flavouring & Food, which began trading in the city on June 19. These companies, most of which are so far state-owned, are poised to increasingly shape Hong Kong's stock market as they keep listing their shares in the city. Here is what you need to know. Why do Chinese companies want to list in Hong Kong? Listing in Hong Kong means Chinese companies can enjoy the best of both worlds: access to global funds as well as attracting domestic investors. Companies can list elsewhere, like in the US, to tap global funds, but the majority of China's 210 million retail traders are deterred by the inconvenient time difference and Beijing's capital controls. Chinese residents are limited in how much money they can convert into foreign currency, with an exchange quota of US$50,000 (S$64,381) per year. But mainland investors with more than 500,000 yuan (S$89,490) in their stock accounts can access companies on Hong Kong's Hang Seng Composite Index – and others – by using a two-way market access programme, known as the Stock Connect, without personal quota restrictions. For many of these companies, getting proceeds in the form of the Hong Kong dollar – which is more fungible than the Chinese renminbi – can facilitate global expansion plans. Beijing has called for leading companies to go global amid cutthroat competition at home and as trade tensions raise the need for companies to diversify their manufacturing locations. Are there disadvantages? The potential downside for these companies is that Hong Kong is more exposed than mainland stock exchanges to geopolitical headwinds and is more vulnerable to a sudden or broad sell-off by global investors. It is much easier to short a stock in Hong Kong compared with the mainland, where such trades have dried up, and the absence of a known stabilisation fund means that index-level panic selling can get much uglier. The vast majority of companies that already have a listing in the mainland trade at a discount in Hong Kong. It is partly because of a difference in taxes for mainland investors, which discourages them from buying more Hong Kong-listed stocks once they rise beyond a certain level relative to its mainland-listed peer. However, that is increasingly shifting. They could also be valued less by foreign investors who might be more cautious about geopolitical risks, regulatory changes or the Chinese economy. Take state-owned enterprise CNOOC, one of China's largest oil-and-gas producers. Its Hong Kong shares trade at a discount of nearly 40 per cent relative to its mainland stock, likely because of concerns about geopolitical risks, as the company was blacklisted by the US in 2021. Why is there interest in Hong Kong now? There is no one reason that points to why this is happening now but, rather, a confluence of factors. Firstly, in September 2024, the Chinese government made a policy pivot supporting financial markets as part of its prioritisation of economic growth. The biggest surprise move then was the introduction of a pair of monetary tools that made it easier for stakeholders and institutions to borrow funds cheaply to buy stocks. Beijing has also vowed to cut red tape to allow more Chinese firms to list in Hong Kong – especially industry leaders. Then there was the so-called Deepseek moment earlier in 2025. Advances in the Chinese company's artificial intelligence capabilities demonstrated the nation's strides in the field despite Washington's tech curbs. This boosted the investment case for Chinese assets, especially as investors increasingly looked to diversify out of the US. Chinese companies are hoping to capitalise on this interest. Meanwhile, Hong Kong has revised its listings rules. It has lowered earnings requirements for specialist tech firms, paving the way for some listings in growth sectors. The fact that mainland stock exchanges have kept tight reins on initial public offerings to stabilise the market has further tilted things in Hong Kong's favour. A string of stellar debuts by some popular firms that have captivated China's younger consumers – Mao Geping Cosmetics, for instance – has others hoping to replicate those successes. Unprecedented buying of Hong Kong stocks by investors in the mainland over the past year amid expectations that the renminbi would weaken, coupled with dip buying, has also enhanced liquidity in Hong Kong. How are companies going about it? Some companies like Bloks are choosing to first list in Hong Kong rather than getting on the long IPO wait line – sometimes as long as three years – in the mainland. Others, like pig breeder Muyuan Foods, are seeking additional funds from a new larger pool of investors in Hong Kong after years of inactive fundraising in Shanghai or Shenzhen. Then there are some taking the route of beverage maker Mixue, which scrapped plans altogether for a China listing after the regulatory tightening of IPOs over the past year. There are also signs that some Chinese companies, amid concerns around US President Donald Trump's erratic foreign policies – including chatter that Chinese firms will be delisted from Wall Street – may be opting to list in Hong Kong instead of the US or other global markets. Fast fashion retailer Shein is the most prominent example. The company is said to be considering switching its IPO to Hong Kong instead of London. What does it mean for the Hong Kong market? An influx of Chinese firms will make Hong Kong more of an extension of China's mainland market. These listings are expected to reshape the financial hub with a greater weighting in consumer, tech and industrials – a shift from banks and developers – to reflect Beijing's 'new productive forces', the government's relatively new economic model that prioritizes innovation and high-tech growth. Chinese firms now account for 70 per cent of the weighting in the Hang Seng Index, up 10 percentage points from 2021. The proportion of trading done by mainland investors is also picking up, averaging around 45 per cent daily in 2025. Right now, high-tech sectors are in Beijing's good graces, but it could be a risk for Hong Kong over the long term, rendering a heavier portion of index members susceptible to China's policy whims. The inundation of big names like CATL is expected to also boost liquidity in the city, in turn lifting valuations of existing stocks. Daily turnover, the value of shares trading hands, hit a record high in 2025, and the average in May was roughly double that of a year ago. What does it mean for investors? Global investors will be able to gain easier access to some of the most interesting Chinese names that they may have missed out on previously. That could have been due to investor mandates, or in the case of passive funds, could have been due to the disproportionately small weighting of China A shares (stocks that trade on the mainland) in the MSCI Asia Pacific Index, which most regional funds track. For stock pickers without China share restrictions, the lack of convenience might have been an impediment. Buying Chinese shares via trading links requires the use of a Hong Kong broker and a custody account. What is more, A shares on growth boards like ChiNext can be accessed only by institutional investors. As a requirement of the Chinese government, once the total foreign ownership of a single stock reaches 28 per cent, the exchange blocks all non-Chinese buying until the percentage slips below a threshold of 26 per cent. These obstacles do not exist for H shares. Mainland investors buying Hong Kong shares are also subject to a 20 per cent dividend tax. In the case of so-called red chip stocks, the levy is 28 per cent. Tax on mainland-traded shares, by comparison, is waived after a yearlong holding period, or halved if investors refrain from trading for one month. Are there risks for investors? Exposure to companies tied to China's tech push could also be a risk for investors who are not familiar with the intricacies of Chinese policymaking. Usually, hints of a crackdown or indications of support from the government are subtle and come before they get on global investors' radars. Fund flows are also a two-way street for these listed companies. Global money can exit a market much faster than it might enter one, as the past years have demonstrated. It took just four months for overseas investors to shed 200 billion yuan of Chinese stocks in 2023, but much longer to buy the same amount. Hong Kong is also a much more volatile market with no trading limits, unlike Shanghai and Shenzhen, which typically cap moves at 20 per cent daily, and allow same day trading which makes it easier to speculate on short term moves. BLOOMBERG Join ST's Telegram channel and get the latest breaking news delivered to you.
The Star
07-06-2025
- Business
- The Star
Hong Kong's still ‘over' but Stephen Roach says city a surprise trade war winner
American economist Stephen Roach has said that Hong Kong has benefited from the US-China trade war despite last year having declared the city to be 'over', even as he claimed that other aspects of the financial hub had worsened. The former Morgan Stanley Asia chairman sparked debate last year after he penned an opinion piece which argued, in part, that Hong Kong would be caught in the 'crossfire' of the worsening US-China rivalry. 'The word caught is the word that, if I had to write the piece again, I would probably change, because I think, ironically, Hong Kong has benefited from the crossfire between the US and China,' he told the Post in a recent interview. Despite worsening ties between the two superpowers since US President Donald Trump began levying his so-called reciprocal tariffs on China and the rest of the world, Hong Kong's stock market has seen solid gains. The benchmark Hang Seng Index is up by around 50 per cent since Roach made his original claim, while Hong Kong has rocketed to the top of the global fundraising table following a string of high-profile initial public offerings last month, including from mainland Chinese battery maker Contemporary Amperex Technology. Roach, who is now a faculty member at Yale University, said the 'sell America' trade had become a 'global mantra' and Hong Kong was a beneficiary. But asked whether he felt his initial assessment of the city being 'over' was premature, he noted he would say the same again. 'No economy or city state is over ... but this image of a dynamic, powerful system as part of the 'one country, two systems' model, I think that's just as close to being over today as it was when I originally wrote the piece,' he said, referring to the city's governing principle. 'The governance story is still, I think, very much working against this notion of Hong Kong as a free, independent, autonomous city state. If anything, it's gotten worse.' Roach added that the strong performance of the city's stock market had 'instilled sort of a new swagger in Hong Kong bordering on denial'. He said there were 'questions that could be raised' about the city's independent rule of law, pointing to the departure of foreign non-permanent judges. He also raised concerns about the fast-tracking of the domestic national security law last year and what he described as continuing efforts to 'quash dissent'. While the Hong Kong government had 'risen to the challenge' to demonstrate to the world that the city should be considered 'special', American investors in particular had developed an 'unwillingness' to distinguish it from the rest of China, he said. 'Where I've come out, reluctantly, is that as great a city as Hong Kong is, it's just another big Chinese city,' he said. 'I think it's increasingly a one country, one system model with a solid financial capital raising infrastructure embedded in Hong Kong.' Executive Council convenor Regina Ip Lau Suk-yee, who previously hit back at Roach over his 'Hong Kong is over' remarks, maintained that the American economist did not understand the city. She said the 'pessimistic views' Roach expressed last year 'were primarily based on the Hong Kong stock market's poor performance'. 'He overlooked China's strength in technological innovations and Hong Kong's unique advantages based on its separate systems. We are the only part of China that can invest, manage and provide trading platforms for digital assets.' She cited the city's recently passed law on stablecoins, which she said would help Hong Kong be the country's 'testing ground' for cryptocurrencies. Stablecoins are a type of cryptocurrency token that maintain a fixed value by being pegged to a reference asset, typically fiat currencies such as the US dollar. The law, which was passed last month and is set to take effect later this year, establishes a regulatory regime for stablecoins, paving the way for issuers to obtain licences and sell the digital assets to the public. 'Despite ongoing US-China tensions, Hong Kong will continue to have an important role to play in building bridges between China and the West,' Ip said. - SOUTH CHINA MORNING POST
South China Morning Post
30-05-2025
- Business
- South China Morning Post
China's world-beaters in tech, energy sectors are focus of investors, JPMorgan says
Global investors are increasingly turning to China's global market leaders in the technology and energy sectors to diversify their investment portfolios amid heightened geopolitical tensions and uncertain economic outlook, according to JPMorgan. Advertisement Funds were not only targeting established firms in industries like car manufacturing, robotics and renewable energy but also capturing opportunities in China's innovative capabilities as market volatility spikes, said Kwang Kam Shing, Hong Kong CEO and chair for North Asia at the US' biggest bank. 'They are a group of very well informed and sophisticated investors,' Kwang said. 'Aside from just talking about the technology, there were discussions on how the supportive business ecosystem in China has effectively nurtured and developed this group of entrepreneurs and innovators.' Industrial robots inside a factory at Midea-Kuka Intelligent Manufacturing Science and Technology Park in Foshan, Guangdong province. Photo: Xinhua Some of China's biggest companies hold commanding leads in global markets. Electric-vehicle (EV) maker BYD has toppled Tesla in sales, while Contemporary Amperex Technology controls more than 38 per cent of the market for EV batteries. DeepSeek's breakthroughs in large-language models sparked a trillion-dollar global rout in Nvidia and US tech stocks in January. Advertisement Global investors' enthusiasm for those companies aligns with Beijing's efforts to bolster high-productivity sectors to combat an economic slowdown, Kwang said.
Daily Maverick
27-05-2025
- Business
- Daily Maverick
China's quiet global conquest of tech and trade
China's listed tech leaders, from BYD and Contemporary Amperex Technology to Semiconductor Manufacturing International Corporation and Huawei's supplier network, are not simply domestic players but global disruptors, commanding leadership positions in EVs, batteries, solar, 5G, AI and more recently robotics infrastructure. Yet their market valuations remain deeply discounted, reflecting geopolitical anxiety rather than underlying business strength. 'Policy done right can drive technological disruption' – Akshat Rathi These are world-class businesses with strong earnings power, global customer bases and a proven ability to innovate under pressure. A rare combination that is often overlooked amid the prevailing political narrative. The quick take China's tech-industrial ecosystem evolved as an interwoven network; success in one domain reinforced progress in others. Chinese tech champions often emerge from concerted state-industry collaboration rather than pure market competition. China's coordinated, whole-nation approach gives it the edge over Western rivals operating in fragmented private markets, accelerating both technological evolution and scale. Tariffs and sanctions are the visible symptoms of a deeper strategic contest; the real story is China's patient, long-cycle industrial strategy that continues to reshape global supply chains. To be clear, this is leading-edge innovation, not just scale – for instance, CATL's recent battery and charge speed breakthroughs. Global rivalries have long served as the crucible for breakthrough innovation and today, the escalating trade tensions between China and the United States form the backdrop to a new industrial revolution, one defined not only by competition over artificial intelligence (AI), chips, and electric vehicles (EVs), but by divergent national strategies. Where Washington has wielded tariffs and sanctions in hopes of stalling China's ascent, Beijing has interpreted pressure as fuel, using adversity to accelerate innovation, reorient supply chains, and scale industrial ecosystems. Nowhere is this more evident than in the current wave of Chinese breakthroughs, from XPeng's in-house autonomous driving chip to Contemporary Amperex Technology's (CATL's) hot-off-the-press sodium-ion and dual chemistry batteries, superfast charging technology (capable of delivering 520km of range in just five minutes), and rapid commercialisation cycle. These advances are not simply about catching up, they are redefining global standards and challenging assumptions about where true innovation resides. Ironically, one of the clearest illustrations of this geopolitical divide is Taiwan Semiconductor Manufacturing Company (TSMC), a company rooted in Chinese-speaking Asia that has become a strategic asset of the United States. Through heavy federal subsidies and onshoring incentives, the US is now effectively 'nationalising' a pillar of global chip supply, positioning TSMC fabrication plants (FABs) in Arizona as a hedge against supply chain vulnerabilities and Chinese influence. In doing so, Washington has acknowledged just how critical semiconductor capacity is in this new era, even if it means reshaping corporate allegiances. This quiet redrawing of industrial maps reveals that technological sovereignty is no longer abstract; it's physical, political, and increasingly nationalised. While the West has often underestimated China's technological ascent, viewing it largely as a story of scale and state-led execution, this narrative is increasingly outdated. Chinese firms like Huawei, CATL, BYD, and even Semiconductor Manufacturing International Corporation (SMIC) have proven themselves to be genuine global innovators, not just beneficiaries of protectionist policy or domestic market size. Their success points to a more fundamental truth: China is producing some of the world's most formidable technology companies, led by management teams that have demonstrated extraordinary agility and resilience, even under intense geopolitical pressure. Huawei's recent performance exemplifies Chinese resilience in the face of US sanctions. In 2024, the company reported a 22.4% year-on-year revenue increase, reaching ¥862-billion ($118-billion), marking its fastest growth in five years and nearing its 2020 peak of ¥891 billion. To dismiss China as 'uninvestable' due to political risk, concerns around property rights or lack of western democracy may be convenient, but it is increasingly an oversimplification. In reality, the opportunity set is growing more global in character. Investors used to look to China for the best-positioned domestic players; now, many of the world's leading companies, in batteries, EVs, telecoms and increasingly robotics, just happen to be based in China. Indeed, the next wave of global disruption may come from robotics, where China's leadership is rapidly solidifying. With breakthroughs in industrial automation, AI-robotic integration and smart manufacturing, China is poised to lead a sector that will rival AI in transformative impact. Rather than being derailed by external shocks like the Trump tariff war, China has responded with a deeper, more coordinated push toward technological self-sufficiency, a high-stakes gambit that may well redefine the rules of global competition. Wan Gang's electric dream In 2007, a quiet revolution was set in motion. Wan Gang – an automotive engineer who had spent a decade at Audi in Germany – was appointed China's Minister of Science and Technology. It was a highly unusual choice. Wan was not even a Communist Party member. He brought an audacious vision: to electrify China's automotive future. Once in office, he aggressively steered industrial policy in the direction of electric vehicles (EVs), a move that was firmly backed by the state. Wan's policy toolkit – from procurement contracts to purchase incentives – created a protected incubator for EV startups. By 2009, generous subsidies, tax breaks and research funding were implemented to bolster the sector and align innovation. The results were dramatic. Between 2009 and 2022, Chinese EV sales ramped up from 500 cars to more than six million, accounting for more than half of global EV sales. Today, Chinese automakers have dominated the field for eight years and produce roughly two-thirds of the world's EVs – an almost unthinkable achievement in just over a decade. Almost in tandem, battery giants like CATL (the world's largest battery maker) and BYD (which produced batteries before cars) expanded rapidly under these policies, scaling up on the back of booming EV demand. In turn, mass production drove down battery costs, rendering EVs ever more affordable – a virtuous cycle that Wan had envisioned from the start. By focusing the might of the state on this strategic sector, China has outstripped the global automotive industry in the transition to electric mobility. Figure 1 indicates an astonishing increase in Chinese car production from just 1% to 39% of global market share in just two decades. Building an industrial tech ecosystem The EV sector was just the first of several in which China built scale and expertise, adeptly leveraging existing capabilities to embrace the new. And so began the evolution of a tightly interwoven tech-industrial ecosystem, where successes in one domain reinforced progress in others. The net effect is an impressive, vertically integrated supply chain that extends from mineral mining through to end products. For instance, the smartphone boom of the 2010s endowed China with world-class electronics manufacturing capabilities (think Foxconn and Huawei). This enabled those same assembly lines and suppliers to swiftly pivot to EV and battery production. This is a path that BYD followed directly, leveraging its mobile battery and internal combustion engine automotive expertise to become a battery and EV producer, outstripping Tesla in unit sales and revenue in 2024. The synergies are everywhere, and economies of scale amplify China's competitive advantage. The massive scale in manufacturing means components such as sensors, power electronics and chips can be sourced cheaply and in bulk. Factories churning out millions of smartphones and solar panels created a domestic supplier base that EV startups could tap into, slashing costs. Meanwhile, the battery innovations spurred by electric cars have spilt over into other arenas. These batteries now drive China's energy storage projects and power smart appliances and devices, further expanding scale. A key example is the renewable energy and EV nexus overlap. The government's heavy investment in solar power and the construction of the world's largest charging network (c. 3.2 million public charging points by mid-2024) created an abundant, ultra-cheap solar energy supply system. This created capacity for millions of new EVs, making them more economically viable and sustainable. China's installed solar capacity rocketed from about 250GW in 2020 to 650GW by early 2024. In 2024 alone, 277GW of solar capacity was added to the grid – more than the US's total installed power capacity. This clean energy boom is not just a green virtue; it directly lowers electricity costs for China's manufacturers. Industrial power in China can cost as little as $0.05–$0.07 per kWh, compared to $0.09–$0.13 in the US. Cheap energy at scale provides a significant competitive edge to energy-intensive sectors like battery gigafactories and semiconductor FABs. Even 5G infrastructure, where firms like Huawei lead globally, ties into this ecosystem, enabling the connected cars and smart factories that further drive demand for chips and software. The Chinese model showcases how coordinated industrial policy integrates energy, transportation and digital tech into a formidable engine of economic power. Each sector's advancement reinforces the others in a way that resembles a modern, hi-tech Silk Road – an integrated network of trade and technology radiating from China (Figure 2). AlphaGo and the AI 'Sputnik moment' A seminal event in May 2017 reshaped the country's hi-tech ambitions: a board game match. China's 19-year-old Go master Ke Jie was defeated by AlphaGo, an artificial intelligence (AI) programme from Google's DeepMind. This highly publicised man-vs-machine showdown was dubbed ' China's Sputnik moment ', with a jolt akin to the 1957 Soviet satellite launch that spurred the US space race. It was game on for Beijing, which wasted no time formulating a response. Just two months later, the State Council issued a national AI development plan, declaring an ambitious goal for China to become 'the world's primary AI innovation centre' by 2030. A massive wave of investment and entrepreneurship in AI followed. By the end of 2017, Chinese startups and tech giants were drawing nearly half of all global AI venture funding. Tech entrepreneur Kai-Fu Lee describes Chinese entrepreneurs at the time as seizing a once-in-a-generation opportunity, leveraging China's huge datasets and hungry venture capital to chase AI applications in everything from healthcare to finance. The government poured funds into research institutes, companies and talent programmes to ensure China would catch up in fundamental AI research. Crucially, this AI push did not happen in isolation – it built on the existing technology foundations that provided the hardware backbone and utilised the ocean of Chinese digital data for AI algorithms to learn from. Abundant cheap and sustainable energy meant AI data centres could be powered affordably, an oft-overlooked edge in the energy-hungry deep learning era. The earlier success in EVs gave China confidence that, with state support, it could crack any frontier technology. From 2017 onward, AI joined the pantheon of industries – alongside EVs, batteries and solar – that China would pursue with characteristic coordination. Silicon squeeze – chips and the quest for self-reliance No discussion of China's tech ascent is complete without semiconductors – the 'brains' powering smartphones, EVs and AI alike. For years, cutting-edge chips were a weak link in China's tech ecosystem. Domestic FABs lagged industry leaders like Taiwan Semiconductor Manufacturing Company by generations, and China imported over $300-billion worth of devices annually. When the US began restricting chip exports to China, this became a huge liability. Starting in 2018 and escalating through 2020-2022, US sanctions denied Huawei and other tech firms access to advanced chips and manufacturing tools, aiming to stall China's progress. It was a harsh wake-up call, but it reinforced Beijing's resolve to achieve semiconductor self-sufficiency. Sanctions became a 'double-edged sword', as Kai-Fu Lee observed. They created short-term pain but forced Chinese companies to innovate under constraints. True to form, China launched a whole-of-nation effort on chips. State funds flowed to FABs and chip design startups; university programmes swelled with semiconductor students; tech giants like Alibaba and Huawei set up chip design divisions. Progress was arduous, but in 2023, Huawei stunned the tech world by releasing its Mate 60 Pro smartphone with a domestically produced 7-nanometer processor, built by Semiconductor Manufacturing International Corp (SMIC) despite US export controls. Its Kirin 9000s chip was the most advanced Chinese-made chip to date. While still a node or two behind the latest US chips, it proved that ingenuity under pressure gets results. The symbolism of the achievement was enormous: China was cracking the silicon ceiling. Huawei's feat hints at what is coming. The company has reportedly marshalled thousands of engineers to develop semiconductor design tools and alternative production techniques. Other firms, from AI chip startups to legacy players like SMIC, are likewise racing to overcome technological barriers which, once achieved, will be a massive disruption. For now, high-end semiconductor production remains one of the few arenas where China trails its global peers. It's a tough problem. But the gap is narrowing. Washington's restrictions, paradoxically, have galvanised Beijing's determination to control its 'silicon destiny'. Should China succeed, it will complete a vertically integrated tech supply chain unrivalled in scope – from energy to materials to finished electronics – truly a Silk Road 2.0, spanning cutting-edge trade. The open-source AI disruption The debut of OpenAI's ChatGPT in 2022 was the next inflexion point, sparking a global AI frenzy. Almost immediately, Chinese tech giants (Baidu, Alibaba, Tencent) and a crop of startups scrambled to develop large language models. Early Chinese offerings significantly lagged behind those of Silicon Valley, resulting in a palpable sense of 'AI fever' and frustration. Then, in late 2024, a relatively unknown Chinese startup called DeepSeek upended the narrative. DeepSeek's secret sauce was its embrace of open-source AI models that were efficient and cheap to train. It was on par with the best American models but was trained for under $6-million using off-the-shelf Nvidia H800 chips. Compared to top-tier AI models that had required tens or hundreds of millions of dollars in computing power, it was a bombshell. Even more shocking, DeepSeek's AI assistant app surged to become the top-rated free app on Apple's App Store in the US, briefly overtaking ChatGPT in popularity. Out of the blue, a free-to-use Chinese model was matching US AI models at a fraction of the cost. By early 2025, DeepSeek had ignited an open-source AI wave and was reported to be 20 to 50 times cheaper on a per-task basis than OpenAI. Chinese companies raced to integrate these free, high-quality models into their products and services. Automakers like Great Wall and BYD began embedding it into their smart car interfaces, adding advanced conversational features without the hefty cloud AI bills. Telecom giants (China Mobile, China Unicom) deployed it for customer service and network optimisation. It was a broad-based adoption that only a large, unified ecosystem like China's could achieve so quickly. DeepSeek is now the default AI engine for a range of domestic industries. By slashing costs, DeepSeek also supercharged innovation. Startups and researchers can build on the good-enough models to create domain-specific AI applications across sectors without needing a Silicon Valley budget. In turn, this broad usage feeds back into improvements and training data for the models, accelerating their improvement. This crowd-sourced, decentralised AI model contrasts with the West's corporate-driven approach. It draws on China's strengths – a deep talent pool and a market that can implement and iterate at scale. In sum, the DeepSeek saga illustrates how deftly China's tech ecosystem can adapt and capitalise on innovation, turning a global tech trend to its advantage. What started with Wan Gang's EV vision has evolved into a multi-headed hydra of tech prowess – from batteries to bytes – each part reinforcing the whole. Figure 3 illustrates the improvement of both US and Chinese AI models, and also notably the pace at which China has caught up with US competitors. Coordinated strategy vs fragmented efforts Beijing's coordinated, long-term industrial strategy reflects a fundamental strategic difference versus a more fragmented, market-led approach in the West. The playbook involves the government setting a clear goal (like EVs or AI supremacy) and then marshalling resources across ministries, state banks and private companies to achieve scale. This includes heavy upfront investment – subsidies, grants and infrastructure – to bolster industries until they can stand on their own. Crucially, policies are consistent over time. EV subsidies, for instance, ran for over a decade and only phased out once China achieved cost parity and dominance. Even then, they were replaced by other incentives to ensure momentum. Policy continuity and clarity have given companies the confidence to make big bets on new technologies. By contrast, the US has relied on the private sector to drive innovation, with limited government intervention. This has yielded incredible successes, but also gaps in coordination. It is only recently that the US government, spurred largely by the threat of China's rise, has stepped in with initiatives like the 2022 CHIPS Act (to boost semiconductor manufacturing) or the Inflation Reduction Act (with EV and clean energy credits). Moreover, policy and federal support wax and wane with administrations, while legal battles and lobbying dilute implementation. As a result, US firms have often had to navigate new commercial paths alone, leading to a more fragmented approach. For example, Tesla's rise was spurred by Elon Musk's vision and Silicon Valley capital rather than government policy. Similarly, AI progressed with private funding and Big Tech backing. This decentralised innovation model produces brilliant breakthroughs but struggles to scale infrastructure-heavy industries such as batteries and solar with China's speed and coordination. The effects of these divergent strategies are now visible in global markets. China's synergistic approach has made it the indispensable supplier of the green and smart technologies that will define the 21st-century economy. Nearly 80% of solar panels come from China, it leads in EV battery production and is a global player in 5G, while DeepSeek is eroding the first-mover advantage of OpenAI. For investors, this suggests that China's tech sector is a linked ecosystem backed by strategic policy that can achieve rapid scale-up and cost advantages. It is a more predictable growth trajectory in some respects, though not without risks (eg, over-investment or geopolitical backlash). By contrast, US tech successes tend to spring from more unpredictable innovation cycles and face more domestic uncertainty, such as shifting regulations on issues like EV tax credits and AI governance. Silk Road 2.0 — from dominance to influence China's quiet conquest of key tech and trade sectors is coming into full view. What started with Wan Gang's EV dream has expanded into a broad-based industrial and technological supremacy in emerging industries. This new trade route is paved with technology standards and trade relationships that increasingly favour Beijing. This influence is quiet but decisive. China's tech conquest often happens at the consumer and enterprise level – a European driver choosing a NIO EV or an African telecom operator buying Huawei 5G equipment. These choices, backed by the cost-efficiency of scale, incrementally lock in China's role as an indispensable partner. From an investment perspective, the story of 'Silk Road 2.0' is a story of shifting competitive moats. China's quiet conquerors thrive on an integrated home base, scale and patient capital, rather than just breakthrough innovation. The US, still the global leader in fundamental innovation and research, now finds itself in the unfamiliar position of playing catch-up in scale commercialisation and deployment. In the US, the growing recognition that a more cohesive strategy is needed is apparent in new semiconductor FABs breaking ground in Arizona, or the rush of EV battery plants across the American South and Midwest spurred by federal incentives. But coordination takes time, and time is what China maximised over the past two decades by starting early in key tech races. An escalating tariff war is more indicative of late-stage desperation than a recognition of the hard work required to balance the reciprocal value of trade. As China consolidates its gains, we would be remiss not to highlight that risks remain. Externally, geopolitical tensions will lead to trade barriers (witness the EU's recent probes into Chinese EV subsidies, or US export bans). Internally, China must balance its top-down directives with market forces – there have been periods of overcapacity and waste. However, the tech-industrial sectors discussed – EVs, renewables, digital tech – align closely with China's long-term development goals (energy security, sustainable growth, tech self-reliance), so they are likely to enjoy continued support rather than abrupt policy reversals. And they offer great value to other customer countries. The lessons from China's trajectory are sobering for its rivals. Tariffs and sanctions, intended as brakes, have often functioned as accelerants. By imposing constraints, Washington has inadvertently sharpened Beijing's resolve, propelling Chinese firms to build new capabilities, scale new industries and forge new trade corridors. The old Silk Road brought goods and culture from East to West. The new Silk Road, forged from semiconductors, batteries, code and solar cells, may bring influence and standards. The shift is already under way. The only question now is whether others will catch up, or merely react to China's pace-setting lead. In conclusion, the narrative from Wan Gang's 2007 gamble on electric cars to DeepSeek exemplifies China's strategic march. It has been a journey of patient planning, learning by doing and scaling up at a pace the world has never seen. DM Peter Leger is head of Global Frontier Markets and portfolio manager at Coronation. Leger has 27 years of investment industry experience.
South China Morning Post
26-05-2025
- Business
- South China Morning Post
Hong Kong to dominate 2025 IPO action amid rush of quality Chinese firms, UBS says
Hong Kong is poised to be the world's top initial public offering (IPO) venue at the end of the year, as a surge in listings by high-quality Chinese companies coincides with interest from global investors seeking alternatives to US assets, according to UBS Group. The city's stock market had taken the lead in global IPO rankings, with investor interest, liquidity and turnover exceeding expectations, said Edwin Chen, Beijing-based co-head of global banking at UBS Securities, the wholly owned Chinese brokerage of the Swiss bank. In addition, 20 to 30 Chinese companies that trade on mainland exchanges were expected to offer shares in the city in 2025, he added. Midea Group 's successful share offering in September, and its solid post-IPO performance, paved the way for similar deals, Chen said in an interview on Friday. 'Hong Kong welcomes A+H listings,' Chen said, referring to mainland-listed companies that sell Kong Kong shares, or H shares, in addition to their yuan-denominated A shares. 'When there's a supply of good and high-quality IPOs, that will attract global investors and capital to Hong Kong.' The city's IPO market regained its feet in 2025 after overseas traders fled amid China's bleak growth outlook over the past few years. Including the US$5.2 billion IPO earlier this month by Contemporary Amperex Technology (CATL) – 2025's biggest stock sale globally – 22 companies have raked in US$7.7 billion in net proceeds in Hong Kong this year, the most among global IPO venues, according to London Stock Exchange Group data. If the momentum continues, the city will take the global annual title for the first time since 2019, when it generated proceeds of about US$40 billion. Chen said Shanghai-listed soft drink maker Eastroc Beverage and another four or five unspecified mainland-listed companies were in UBS' pipeline for Hong Kong offerings. Other investment banks also had full slates this year due to the recovery in sentiment, he added.
