China's stock market entered a new structural phase in 2026, with AI hardware and semiconductor suppliers rapidly displacing internet titans and state-owned banks as the dominant investment theme — a shift now confirmed by record export data and surging factory output.
AI Products Drive Half of China's Export Growth
In the second quarter of 2026, AI-related goods — semiconductors, printed circuit boards, energy storage devices, and computer components — accounted for roughly half of China's total export growth, according to data cited by Xiao Zhengyi, a fund manager at HSBC's China A-Share Convergence Fund.
The boom is not purely about volume. Prices have surged alongside output. Memory product prices have climbed five to seven times since mid-2025, driven by global demand for data center capacity. AI-related goods price increases account for roughly two-thirds of the overall rise in China's export prices — a dynamic that elevates AI hardware's economic contribution well beyond a niche sector story.
Semiconductor Exports Surge as STAR 50 Outpaces Nasdaq
The trading numbers reinforce the structural shift. In July 2026, China's semiconductor imports rose more than 70% year-over-year, while exports surged 117% over the same period — figures that signal both strong upstream demand and a widening downstream supply chain.
In the first half of 2026, the STAR 50 Index — which tracks China's science and innovation board and skews heavily toward AI hardware companies — significantly outperformed both Hong Kong's Hang Seng Tech Index and the U.S. Nasdaq. That marks a meaningful reversal from years in which Chinese tech stocks consistently trailed their American counterparts.
By contrast, China's major legacy tech stocks — the internet platforms and consumer-facing giants that dominated portfolios from 2010 to 2025 — fell more than 20% between January and mid-August 2026.
Three Decades of Sector Rotation, One New Dominant Theme
The current shift is part of a longer arc. China's stock market was built on state-owned enterprises and the banking sector through the 2000s. The next decade brought the rise of internet platforms as the defining growth story. Now, AI hardware is claiming that mantle.
"The market is entering a new rebalancing phase," Xiao said, noting that while some technology stocks have run up too quickly, the underlying export data points to a durable structural change rather than a speculative bubble.
Beijing Bets on Infrastructure to Lift Domestic Demand
China's K-shaped economy — strong in exports, weak in domestic consumption — remains the central tension for investors. Xiao described this divergence as a critical variable for the country's next phase of growth.
Beijing moved to address the gap in late July, when a high-level central government meeting called for accelerating fiscal spending and pushing through broad infrastructure investment centered on six strategic networks: water supply systems, an upgraded power grid, computing power infrastructure, next-generation telecommunications, urban underground utilities, and logistics networks.
These projects sit at the heart of China's 15th Five-Year Plan, with total related investment this year estimated at more than 7 trillion yuan (approximately $970 billion). The policy intent is to pair the AI export engine with domestic infrastructure spending to guard against a growth slowdown.
Trade Friction Clouds an Otherwise Strong Export Outlook
Strong export data does not mean external risks have faded. China's trade relationship with the European Union remains uncertain, while the United States has imposed new import restrictions on robotics and related products. A further expansion of those restrictions could add meaningful pressure to China's export industries.
Against that backdrop, Beijing is preparing a new round of fiscal and financial coordination policies expected in the second half of 2026, aimed at both stimulating domestic demand and guarding against a sharper growth slowdown.
Xiao identified four areas of opportunity as China's AI-and-infrastructure dual engine gains traction. First is AI data centers, encompassing power supply equipment, energy storage systems, and computing infrastructure. Second is the broader power sector, including grid investment, raw materials such as copper, aluminum, and steel, and fuels including coal and natural gas.
Third are cyclical rebound stocks — particularly insurance companies and securities firms that benefit from rising equity markets. Fourth is mining equipment, including excavators, heavy trucks, and other machinery used in mineral extraction and transport.
Whether both engines — AI-driven exports and government-backed infrastructure investment — can sustain momentum simultaneously may determine not just China's next market cycle, but the pace at which the country navigates the pressures of global trade friction.
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