Chinese tech stocks experienced a whipsaw on February 25, 2025, as mainland investors rushed to stabilize prices, partially reversing losses triggered by concerns over U.S. President Donald Trump’s renewed push to restrict investments between the U.S. and China.
The Hang Seng Tech Index, which tracks the performance of Chinese tech firms, initially plunged by as much as 4.4%, reflecting the impact of Trump’s announcement about tightening measures. However, by 1 p.m., mainland investors stepped in, contributing over $1 billion to Hong Kong’s stock market, helping to recover most of the losses. This surge in investment was seen as a vote of confidence in China’s artificial intelligence (AI) sector, which has become a key priority for President Xi Jinping as the tech rivalry between the U.S. and China intensifies.
Despite this rebound, concerns over increased scrutiny of Chinese companies in the U.S. persisted, with American Depositary Receipts (ADRs) of Chinese tech companies falling by 5%. Trump’s recent directive targeted the use of variable interest entity (VIE) structures—commonly used by Chinese firms to list on U.S. exchanges—and brought the spotlight back to the accounting practices of foreign companies, potentially leading to more delistings.
Alibaba’s shares highlighted the divide between Chinese markets and international ones. The company’s ADRs in the U.S. fell by 10%, while its shares in Hong Kong saw a much smaller decline of less than 3%. This disparity in performance led to Alibaba’s ADRs trading at a 7.6% discount to its Hong Kong listing, the widest gap since May 2022.
Trump’s move to target Chinese chipmakers added to fears about the growing tension, but mainland investors remained bullish on China’s self-sufficiency in technology, with many seeing the dip as a buying opportunity. Zhuang Jiapeng, a fund manager at Shenzhen JM Capital, was optimistic, stating, “This is not the time to let go of positions in China tech.”
In addition to market volatility, the ongoing “ex-China” investment theme has seen growing traction, with U.S. pension funds reducing their holdings in Chinese stocks. This trend has led to a record number of emerging-market funds being launched with a focus away from China.
Despite these challenges, the Hang Seng Tech Index has gained about 29% year-to-date, buoyed by optimism surrounding the sector’s future, especially following President Xi’s high-profile meeting with tech business leaders. Investors, particularly from mainland China, remain hopeful about China’s AI sector, drawing parallels with the mid-2023 rally of Nvidia. For these investors, the current market fluctuations represent a potential opportunity to capitalize on China’s tech growth.
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