China's Tech Stock Boom Defies Economic Woes, Driven by AI and Innovation

• China's tech stocks are surging in early 2026, fueled by advancements in AI, robotics, and commercial rockets, despite a fragile economy.
• An onshore Nasdaq-like tech gauge is up almost 13% this month, and Hong Kong-listed Chinese tech firms climbed nearly 6%, both outperforming the Nasdaq 100.
• DeepSeek's AI breakthrough last year and upcoming R2 model, along with a focus on homegrown tech, are key drivers of the market rally.
• Investors are re-evaluating China as a credible challenger to US tech leadership, moving beyond its low-cost manufacturing image.
• Concerns about stretched valuations and Beijing's tightening of margin financing exist, but state backing and a low-cost AI model strategy offer optimism.

Why It Matters: China's tech sector is experiencing a significant stock rally, driven by AI and innovation, challenging US tech dominance.