China’s tech sector is thriving — with a catch. Stocks are at three-year highs, driven by optimism over DeepSeek, the homegrown answer to OpenAI, and strong corporate earnings. But Tuesday’s declines — triggered by Donald Trump’s latest executive order — serve as a stark reminder that geopolitical risk will remain an enduring force in Chinese equity markets.

The rally had been well-founded. Alibaba, a key beneficiary of the artificial intelligence-driven surge, reported strong earnings growth as revenue rose to $39bn in the latest quarter. Earnings at local peers Lenovo and Xiaomi also beat expectations, driving gains in the Hang Seng Tech index. As across the Pacific, high hopes for AI have driven valuations upwards.

That has prompted growing investments. Alibaba has pledged an aggressive $53bn outlay on cloud computing and AI infrastructure over the next three years. Peer Huawei has made progress in AI chip production. Even as the US tightens restrictions on semiconductor exports, Beijing is strengthening self-sufficiency initiatives that make its tech sector resilient to external pressures.