If China technology is evolving from a supply-chain exposure into an independent source of technology beta, and a“G2” technology landscape is emerging in which China and the U.S. increasingly possess distinct ecosystems, the pungent question is no longer simply whether Chinese tech stocks are “cheap.”
The recent correction in global technology stocks has revived a familiar question for investors: was the selloff a warning that the AI trade had gone too far, or did it create a better entry point into a longer-term technology cycle?
For Chinese technology, the answer may extend beyond the timing of the next rebound. The more consequential shift is taking place in how global investors define the asset class itself. After years of being viewed primarily through the lenses of manufacturing, supply chains and internet platforms, Chinese technology companies are increasingly being assessed on their own technological capabilities, competitive positioning and potential to participate in the next generation of global innovation.
That shift—from structural underweight to potential repricing—could matter more for long-term investors than any single market correction.
A Correction That Reset the Starting Point
The immediate backdrop is a significant valuation reset.
According to UBS, a basket of selected Chinese AI technology hardware stocks fell 32% in July, with more than one-third of the stocks it tracked declining by at least 40%. A-share margin financing balances also retreated from RMB3 trillion to 2.6 trillion, suggesting that some of the leverage and crowded positioning accumulated during the earlier rally had been unwound.
Yet prices and fundamentals did not move in tandem. UBS noted that valuations had returned to only slightly above historical averages even as earnings expectations continued to be revised upward. Recent results from major U.S. hyperscalers also pointed to improving AI monetization, stronger cloud backlogs and accelerating enterprise adoption.
That divergence is important for investors. A correction driven partly by valuation and positioning carries different implications from one accompanied by collapsing earnings expectations. UBS remains constructive on China technology fundamentals, while expecting market performance to become broader and more selective in the second half.
The result is not necessarily an “all clear” signal for technology stocks. But it does suggest that the risk-reward equation has changed since the market’s earlier crowded rally .
From Supply-Chain Exposure to Independent Technology Beta
The bigger investment case, however, goes beyond valuations.
Jason Hsu, founder and CIO of Rayliant, argues that overseas investors are undergoing a fundamental change in how they perceive Chinese technology. For years, he said, many investors viewed the U.S. and China largely through an upstream-downstream relationship: U.S. companies controlled key technologies, channels and profits, while Chinese companies occupied lower-value portions of the supply chain.
That framework is becoming increasingly difficult to maintain.
Hsu describes an emerging “G2” technology landscape in which China and the U.S. increasingly possess distinct technology ecosystems and compete across a wider range of industries. Advances in AI, advanced manufacturing and biotechnology have given international investors more reasons to evaluate Chinese companies as an independent beta rather than simply suppliers to Western giants.
Richard Pan, head of Global Capital Investment, ChinaAMC, makes a similar point: “China is no longer simply a low-cost supplier at the lower end of the global value chain. Its companies are increasingly emerging as some of the most competitive players at the technological frontier.”
For investors, that distinction matters. If China technology is evolving from a supply-chain exposure into an independent source of technology beta, the appropriate question is no longer simply whether Chinese stocks are “cheap.” It is whether global portfolios adequately reflect the changing role of Chinese innovation.
Why Global Underweight Could Matter
The starting allocation remains low.
Hsu estimates that roughly 80% of the world’s more than US$100 trillion in equity assets is allocated to U.S. stocks, while emerging markets account for only around 5%. Within that pool, normal allocations to China A-shares and Hong Kong equities amount to roughly US$1.5–2 trillion.
Hsu does not expect that imbalance to reverse through a dramatic “sell America, buy China” rotation. Large pension and sovereign funds tend to change strategic allocations slowly and are still conducting extensive research on Chinese technology. Family offices, private banks and smaller, more flexible institutional teams can move earlier when they identify structural opportunities.
That distinction offers a more useful way to think about potential foreign inflows. The long-term opportunity does not require investors to abandon U.S. technology. If perceptions of Chinese technology continue to improve, even a gradual move from structural underweight toward a more normalized allocation could create a gigantic size of new fund.
China Tech Is No Longer Just China Internet
The composition of the opportunity has changed as well.
Traditional China technology exposure has often been synonymous with large internet and e-commerce platforms. Hsu argues that the next generation of Chinese technology is considerably broader, organized around two pillars: technology leadership and manufacturing upgrade. Together, they span AI software and hardware, semiconductors, EVs and robotics, advanced manufacturing, renewable energy and innovative biotechnology.
That breadth creates a different investment proposition. China can participate not only in software and consumer internet growth, but also in the physical infrastructure underlying AI, industrial automation, semiconductors, EVs and batteries, drug innovation, robotics and fintech.
Biotechnology illustrates the point. Hsu sees rising global drug-development costs encouraging greater collaboration between multinational pharmaceutical companies and Chinese biotech firms, allowing Chinese companies to participate in global innovation through research, clinical development and manufacturing rather than relying solely on domestic demand.
“There is a great opportunity for renewed collaboration between American bio-pharma and Chinese bio-tech. It's a sleeper opportunity most people don't pay attention to,” said Hsu.
Another undervalued sector, according to him, is internet platforms reinventing themselves into AI stocks. “They haven't convinced global investors that they could be Amazon. If they did, they can have much higher valuation multiples.”
This broader definition of China technology is also beginning to be reflected in how some investment strategies define the opportunity set. One example is the Solactive ChinaAMC Transformative China Tech Index, which underlies the Rayliant-ChinaAMC Transformative China Tech ETF (CNQQ). Rather than focusing primarily on internet platforms, the index includes both A-share and Hong Kong-listed companies across a broader range of technology and advanced manufacturing themes.
As of August 13, 2026, its top holdings included Alibaba and Tencent alongside CATL, Zhongji Innolight, Cambricon Technologies, Naura Technology and Eoptolink Technology, spanning internet platforms, batteries, AI infrastructure, semiconductors and other areas of advanced technology. The composition illustrates how the investable China technology universe can extend beyond the traditional internet-platform exposure. (Source: Solactive, as of August 13, 2026.)
Repricing Still Needs Fundamentals
None of this eliminates the risks.
China technology remains exposed to market volatility, government policy and geopolitical uncertainty, and the possibility that expectations for AI monetization run ahead of earnings delivery. CNQQ itself carries equity, China and emerging-market risks detailed in its prospectus.
And a broader technology definition does not mean every segment will outperform simultaneously. UBS expects the next phase of the market to become more selective, making earnings delivery and AI monetization increasingly important in distinguishing winners from companies supported primarily by sentiment.
But that may also be precisely why the current moment is different from a simple “buy the dip” argument.
The investment thesis rests on three developments occurring at once: valuations have reset after the recent correction; China’s technology opportunity is expanding beyond its traditional internet identity; and global portfolios remain relatively underweight Chinese equities even as perceptions of the country’s technological capabilities shift.
If those trends persist, the longer-term opportunity may not simply be another China tech rally. It could represent a broader reassessment of where Chinese innovation belongs in a global portfolio—and what investors should own to capture it.
Sources: China Fund News, August 17, 2026; China Securities Journal, August 17, 2026; UBS Global Research, China Equity Strategy: Time to Get Back in Tech?, August 10, 2026; ChinaAMC DeepTalk; Rayliant CNQQ fund materials.
Disclaimer
Investment involves risk, including possible loss of principal. Any forecasts, projections, or opinions contained herein are for reference only and are not guaranteed to occur. The information in this material reflects prevailing market conditions and our judgment as of the release date, which are subject to change without further notice.
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