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China Technology: Innovating the Future (Part 3)
China tech is entering a durably, policy-aligned innovation cycle with expanding markets and strengthening self-reliance
Chief Investment Office, Yeang Cheng Ling31 Mar 2026
  • China tech is accelerating, with strong policy support and deep engineering talent
  • AI, cloud, data centres, and robotics drive rapid TAM expansion across enterprises
  • Domestic substitution strengthens self-reliance as capex rises
  • Innovation leadership broadens as champions and "little giants" advance monetisation
  • New listings widen investment access, highlighting long-term winners in China's innovation cycle
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Road to prominence. Against a profound transformation in the global innovation landscape, China’s technology industry is advancing through an unprecedented “catch-up growth” phase, supported by its unique competitive strengths and momentum.

In recent years, China has achieved meaningful breakthroughs in frontier technologies spanning AI, semiconductors, humanoid robotics, and new energy. Backed by policy support, heavy R&D investment, and a robust engineering workforce, domestic self‑sufficiency is accelerating, global market share is rising, and the long‑term growth outlook is becoming increasingly compelling.

Total addressable market (TAM): A powerful engine of expansion

China’s technology ecosystem demonstrates strong growth and offers enormous potential, particularly across strategic fields such as AI, cloud computing, and robotics:
  • Artificial Intelligence (AI): According to CCID Consulting (a research institute under the Ministry of Industry and Information Technology), China’s AI industry TAM is expected to reach CNY1tn in 2030 and CNY1.7tn by 2035. These are clear indications that AI will play a vital role in shaping China’s growth matrix and its path to technological ascendency.
  • Cloud Computing: China’s cloud market is one of the world’s fastest-growing industry. Based on the analysis by the China Academy of Information and Communications Technology (CAICT), the TAM for cloud computing reached CNY1.1tn in 2025 and is projected to expand to CNY3.2tn by 2030 – mammoth potential by any standard. As the key foundational infrastructure of the digital economy, cloud computing remains a core pillar of China’s digital transformation journey.
  • Robotics and automation: Recent advances culminated in the high‑profile, awe‑filled debut of agile humanoid robots at the Lunar New Year showcase, demonstrating sophisticated coordination, balance, and mobility through complex, synchronised performances. These acts brought to life seamless, human‑like martial‑arts movements, including precise limb articulation, coordinated sword handling, controlled backflips, and delicate physical interaction with human performers. This underscored meaningful leadership in robotic dexterity and control capabilities critical for real-world commercial deployment. The robotics and automation industries are fast emerging as cornerstones of the country’s next innovation driver. Annual industrial robot produced has surged to 773,000 units in 2025 from just 33,000 in 2015, representing a striking 37% CAGR and underscoring both scale and accelerating technological depth. This speaks volumes of domestic capabilities moving up the value chain, narrowing gaps in precision engineering, control systems, and AI-enabled automation. As global manufacturers retool for resilience, efficiency, and labour substitution, China’s integrated supply chain and policy-backed push for “smart manufacturing” position it well to capture a disproportionate share of the incremental demand, reinforcing its role as both producer and end user in the robotics ecosystem.
The journey ahead: Road to innovation

China has shown marked improvement in its innovation ranking through the relentless efforts by both the government and private enterprises. While gaps remain and China still trails leading countries such as the US, its Global Innovation Index (GII) score rose to 56.6 in 2025, up significantly from 46.4 at the start of last decade. This index tracks global innovation performance categories including investments, technological progress, adoption rates, and socioeconomic impact.

Emergence of national champions and the rise of specialised innovators

As a relatively recent entrant, China’s cloud computing sector remains dominated by a select group of leading technology giants, alongside the parallel emergence of smaller-scale, innovative enterprises in niche segments, collectively driving industry development.

Alibaba Cloud commanded a dominant 36% market share in China’s AI cloud market as of 1H2025 (Source: Omdia), followed by Volcano Engine and Huawei at 15% and 13%. Smaller players like Tencent Cloud, Baidu AI Cloud, China Telecom, and SenseTime accounted for 7%, 6%, 5%, and 4%, respectively. This competitive landscape is set to continue fostering technological innovation and driving optimisation across a robust domestic cloud ecosystem where more players are slated to join the race.

In fostering a vigorous framework, the government has rolled out supportive measures to cultivate a new cohort of smaller enterprises across AI, semiconductors, IC design, new energy, and frontier technologies, under the national strategy of “domestic substitution” and “self-reliance and self-strengthening”.

Based on Xinhua News Agency coverage of the 2025 Specialised, Sophisticated, Unique, and New SMEs Development Conference, China has to date cultivated more than 19,000 national-level “Little Giant” enterprises. While accounting for only 3.5% of the total population of large-scale industrial SMEs, these firms contribute a disproportionate 10% of operating revenue and 14% of profits, underscoring their strong monetisation power through their innovation and competitive capabilities.

Consumer behaviour: Evolving demand amid the digital wave

Rapid technological advancement and deepening digital penetration have made Chinese consumers highly receptive to advanced technologies, accelerating demand for smart devices and seamless processes. Against this backdrop, generative AI is scaling quickly from experimentation to deployment, embedding across industries with tangible use cases.

By end-2024, 302 generative AI services had completed regulatory filings with the Cyberspace Administration of China, with 249mn registered users (Source: AI Readiness White Paper, KPMG & Cisco) underscoring both the pace and breadth of adoption.

On the enterprise front, digital transformation is no longer discretionary, but is fast becoming a core operating mainstay across telecoms, internet platforms, public sector departments, financial institutions, security agencies, manufacturing, healthcare, energy, and utilities. This broad-based adoption is reinforcing structural demand for cloud infrastructure (IaaS), platform layers (PaaS), and increasingly AI-as-a-service (AIaaS), as enterprise users prioritise scalability, automation, and data-driven decision making.

Regulatory support: Strategic guidance and policy enablement

The rapid uptake of AI‑embedded applications is underpinned by decisive top‑down initiatives, reflecting the government’s unyielding focus on technological innovation. Enhanced policy emphasis on “self‑reliance and self‑strengthening” in core technologies is accelerating domestic capability formation, with semiconductors at the centre of this strategic push.

Challenges and opportunities
  • Challenges: Despite rapid progress, China still relies on imports and faces technological bottlenecks in certain core areas, such as high-end semiconductor manufacturing equipment and specialty materials. In addition, Sino-US trade relationships and global geopolitical uncertainties continue to pose challenges to China’s catch-up growth.
  • Opportunities: A vast domestic market, enormous R&D funding, deep engineering talent pool, and strong national support underpin sustained growth. Capital-market mechanisms such as industrial-capital linkage, the STAR Market, and the Beijing Stock Exchange facilitate financing and accelerate commercialisation. These internal advantages provide critical support for China’s path to technological advancement.
Narrowing the gaps

Nonetheless, the country has established a commendable track record in moving up the value chain. Notable evidence includes the following:

1. High-tech exports: Strengthening global standing
In 2024, China’s high-tech exports reached USD857bn, accounting for nearly one-quarter of the global total. As the world’s single largest exporter by country, this highlights China’s central role in the global technology supply chain and market share, providing strong evidence of industrial upgrading.

2. Power generation: A pillar for a future-ready economy
Mainland China’s capabilities in power generation have expanded rapidly, providing reliable energy support across strategic verticals. Annual electricity generation reached 10,087 TWh in 2024, a stark seven-fold increase since 2000, and accounted for one-third of global power output.
An abundant and stable electricity supply is among the indispensable factors for the running of data centres, cloud infrastructure, AI compute, and other energy-intensive technology verticals, thereby safeguarding the success of China’s digital transformation journey.

3. Data centres: Solidifying the digital backbone
According to data from CAICT, China’s data centre rack capacity surpassed 9mn units in 1H25, up from 1.7mn in 2017. The rack population is projected to further expand to 20mn by 2028 (CIConsulting), underpinned by large-scale infrastructure investment that provides a critical advantage and serves as a competitive moat to fortify China’s global position in cloud computing, big data compilations and processing, AI compute, and IoT networks, within the broad framework of digital evolution.

4. Semiconductor self-sufficiency: From challenges to opportunities
The push for semiconductors is increasingly evident with the surge in chipmaking equipment imports. Monthly imports have risen from c.USD200mn to an average of USD2.9bn in the final quarter of 2025, underscoring both intent and firmness. While still relying on external inputs, this move shows thoughtful capacity planting, tool acquisition, and know-how learning to accelerate domestic production.

Encouragingly, local champions such as SMIC and Hua Hong are demonstrating tangible progress, with reported capabilities at the 7nm process node. This signals a narrowing of technological gaps despite constraints. Policy support, capital intensity, and ecosystem coordination – spanning specialty materials, equipment, design, and process flows are increasingly aligned, creating a flywheel effect for indigenous innovation towards self-sufficiency.

With rising R&D investment and ongoing breakthroughs, domestic substitution in high-end equipment will accelerate over the long term, further enhancing competitiveness.

Capital market returns of AI & Robotics: Fundamentals support long-term growth

China’s AI and robotics sectors have delivered encouraging performance. Using Feb 2020 as the base date, AI and robotics have delivered returns of 110% and 150%, respectively. Despite intermittent volatility, both sectors have exhibited a long-term upward trend, especially during 2024–2025.

Investment outlook: Focus on winners in the irreversible trend of innovation

China’s technology industry is at a critical stage of catch-up growth across artificial intelligence, large language models, compute power, leading-edge semiconductors, new energy, advanced manufacturing, and other frontier sectors. In several areas, China has either achieved partial leadership or significantly narrowed the gap with global peers.  

This progress is underpinned by rising R&D investment, expanding patent portfolios, policy dividends, a deep talent pool, willingness to embrace open-source architecture, and strong engineering capabilities, collectively forming the core foundation for China’s technological breakthroughs.

The recent list of public IPOs – including Moore Threads, MetaX IC, Huadian New Energy, Horizon Robotics, UBTech Robotics, Zhipu AI (Knowledge Atlas), Shanghai Biren Technology, Minimax and OmniVision IC across onshore and HK Exchanges – underscores a clear policy tilt towards broadening capital market depth, diversifying market expressions, and elevating representation of AI and innovation-led enterprises. More importantly, a pipeline of potential listings from sought-after strategic and leading-edge entities will further add to the extensiveness of selections. Notable potential examples include KunlunXin, ChangXin Memory, Yangtze Memory Technologies, T-Heard Semiconductor, Shanghai Jieyue Xingchen Intelligence Technology, and UniTree Robotics.

These developments reflect concerted efforts to channel capital into strategic sectors, enhance market participation, and cultivate the diversity of investable opportunities. For investors, this reinforces a constructive outlook on China’s technology investment themes, encompassing AI, cloud computing, equipment manufacturers, foundry innovators, platform enablers, electricity generation adaptors, and broader ecosystem winners.

Looking ahead, we maintain a long-term constructive outlook on China’s position in the global technology landscape. The trend towards self-reliance and domestic substitution is irreversible, with Chinese enterprises poised to play an increasingly important role both regionally and globally – expanding market share and completing an industrial upgrade towards technology leadership.

We recommend investors focus on long-term opportunities in China’s innovative sectors and industry leaders, where earnings visibility is underpinned by sustained capex cycles, growth certainty, and structural sectoral tailwinds.

Figure 1: China’s Artificial Intelligence market size, 2024-2035F

Source: CCID Consulting, DBS


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