Hong Kong-listed tech shares are riding high on investor enthusiasm over China’s newly released large language model DeepSeek, with AI-related equities trading on the local exchange enjoying steep price rises in recent days.

In the first trading week after the Lunar New Year break, the Hang Seng TECH Index rose by over 8%, with many of its constituent stocks, particularly those related to artificial intelligence, such as smartphone maker Xiaomi and chip developer SMIC, gaining over 10%.

This bullish momentum is largely due to the sensation created by DeepSeek when it released its free chatbot shortly before the holidays. Launched amid a raging technology rivalry between China and the United States, the Chinese AI model was a bold challenge to US supremacy in the field as it was said to have been developed at a fraction of the cost of OpenAI’s ChatGPT-4 and other current US models.

DeepSeek’s blazing entry into the AI space is raising questions about the enormous investments into the development of current AI models, and could lead to a new round of re-evaluation of Chinese technology companies. As many of these Chinese technology companies are listed in Hong Kong, it is not surprising to see the prices of Hong Kong tech equities go up.

Interestingly, the optimism over Chinese technology breakthroughs comes amid the ongoing trade war 2.0 between the US and China, in which steep tariffs have been put in place by both countries on each other’s exports.

At the same time, DeepSeek’s initial success raises hopes that China could find new drivers to its economic growth.

Intelligent driving is China’s new opportunity

According to a recent investment outlook by MorningStar, AI investing may soon be following a different logic in that investors in 2024 focused on AI hardware and infrastructure, whereas this year the focus is likely to be on the commercialization of AI.

If this prediction proves true, it would be good for Chinese tech companies. While the US enjoys an edge over China in the area of high-end AI chip development and manufacturing, China could find an advantage in the commercial application of AI as commercialization doesn’t require the most advanced AI software but can work on mid-level chips which China can produce on its own.

One mature area of AI commercialization is intelligent driving for new-energy cars, in which China has established leadership both in manufacturing capacity and market potential.

Unlike advanced graphic processing units ( GPUs ) built on 5- or 3-nanometre ( nm ) chips, which China is facing difficulties in acquiring amid supply bottleneck issues and US trade restrictions, intelligent driving systems only require 10nm or 12nm chips, which China can buy or make easily.

In fact, several HK-listed China tech companies related to intelligent driving chips and new-energy car manufacturers have benefited from this AI price-in effect. Shares of leading electric car players such as BYD and Geely have gained over 20% in one week, while intelligent driving chip suppliers such as Black Sesame Technologies and Horizon Robotics have surged over 30%.

Favourable policies can sustain market momentum

The AI-powered intelligent driving theme is likely to sustain in the long run. China’s electric car market is still expanding at a high speed, and so sales of electric cars and related chips will continue to rise. The country’s electric car industry association estimates sales could grow by over 30% in 2025, and intelligent driving is a new aspect of differentiation for car manufacturers to consolidate their competitiveness.

Strong policy support is another reason. As a pre-emptive move to hedge risks from a fresh trade war with the US, China has launched a series of policies boosting domestic consumption since last year, including subsidies for trade-in activities. The purchase of new cars, especially electric cars, is among several key consumption areas the government is encouraging.

For years, China is known for building its economic might by creating economies of scale to boost the sale of goods and services. With the launch of domestically developed AI models such as DeepSeek, China finds a new opportunity to prove that it is no less good at AI research and development.