The era of indiscriminately investing in any Chinese company with 'AI' in its name is drawing to a close.
Chinese fund managers are now adopting a much more selective approach. Instead of chasing broad themes, they are concentrating their capital on a handful of industry leaders who can demonstrate something tangible: verifiable orders and a clear path to delivery. This marks a significant maturation of the market, moving away from what was essentially a speculative free-for-all.
So, what's driving this shift? There are three primary forces at play. First, regulatory guidance. The China Securities Regulatory Commission (CSRC) has been quite explicit, warning the massive $13 trillion fund industry to support genuine innovation but steer clear of "concept hype." This official directive pressures managers to favor companies with solid financials and proven business models over those simply riding a narrative wave.
Second, there are hard physical constraints. China is aggressively building a national computing network, but the reality on the ground is a bottleneck in hardware and power. There's a real scarcity of high-end chips, servers, and even the electricity to run them. In this environment, companies that have secured their supply chains—those with guaranteed access to components and the ability to assemble and ship systems—hold a distinct advantage and justify a premium valuation.
Finally, market performance tells a compelling story. There's a stark divergence between the performance of US-based AI stocks and Chinese tech stocks. For instance, the US AI ETF (AIQ) has seen strong gains, while the China internet ETF (KWEB) has struggled significantly. This massive performance gap makes it clear that a broad-beta approach to Chinese tech isn't working. It forces investors to seek out pockets of strength and prioritize the "certainty of orders" to generate returns.
In essence, the strategy has evolved from betting on a narrative to investing in execution. The companies that can navigate regulatory pressures, overcome supply chain hurdles, and actually deliver on their promises are now the ones attracting serious capital.
- Glossary
- CSRC: The China Securities Regulatory Commission, the main regulator of the securities industry in China.
- Beta: A measure of a stock's volatility or systematic risk in comparison to the market as a whole.
- Compute Power: The ability of a computer or system to perform calculations and process data, often measured in FLOPS (Floating-Point Operations Per Second).