Investors looking at China's AI surge for returns are focusing on the wrong question. The prudent strategy does not involve identifying a single successful AI.  Rather, it entails mapping the locations where value is generated throughout the entire innovation chain. The chain extends from power grids and semiconductors to banks and biotechnology. This exemplifies how Beijing is presently restructuring its markets to foster competition.

China still controls its cross-border capital flows quite tightly. Its industrial policy is intricately linked with the allocation of financial resources. That does not imply that the state can arbitrarily determine share prices. However, strategic status alters an industry's access to funding and talent. This is most clearly demonstrated in the 15th Five-Year Plan. The plan advocates developing more robust and balanced capital markets. It emphasises equity financing, in addition to bank credit, as the preferred mechanism to support risky innovation. The designated targets encompass artificial intelligence, semiconductors, commercial space, and pharmaceuticals. Public sentiment is now aligning with policy objectives. The Shanghai market ascended beyond 4,000 points in early 2026. A symposium held in February 2025 indicated a renewed tolerance for private enterprise. It featured entrepreneurs associated with Alibaba, Xiaomi, and DeepSeek collectively.

Shanghai is strategically positioning itself to finance China's advanced technological sector. Hong Kong is emerging as the international interface for Chinese innovation. The trading data now clearly support this shift. Southbound Stock Connect achieved a record turnover of HK$121.1 billion (RM62.4 billion) in 2025. This amounted to more than twice the HK$48.2 billion observed in 2024. Trading activity was vigorous in technology, semiconductors, and biotechnology sectors. The exchange also encompasses numerous participants within the AI value chain. In June 2026, listing regulations were expanded to accommodate AI companies that are incurring losses. Hong Kong concurrently links two substantial pools of capital. It attracts global institutional investment and mainland southbound liquidity, fostering a convergence of financial resources. This diminishes its dependence on Western investors' return to Chinese assets.

Artificial Intelligence is commonly conceptualised as involving hardware components such as chips and sophisticated software models. Currently, it constitutes a highly energy-intensive undertaking. China's advantage may be less dependent on any single breakthrough. Instead, it resides in the combination of capital, computing resources, and extensive power. Generation, transmission, storage, and grid systems supply data centres and applications. The same principle underpins electric vehicle leaders such as BYD. Its success is intrinsically linked to China's battery and charging ecosystem. For investors, the fundamental lesson to be derived from this is of subtle yet significant importance. Some resilient winners will not necessarily be prominent AI corporations. Rather, they will be the grid operators and power equipment manufacturers supporting them.

The financing network further expands beyond these entities, encompassing banks, brokers, exchanges, asset managers, and insurers, all of whom stand to benefit. The major state banks maintain a position of special trust with households. This trust is more profound than that currently afforded to most brokerage firms. Nevertheless, these should not be regarded merely as straightforward dividend plays. Consideration of margins, property credit risk, and policy obligations all necessitates careful attention.

Alibaba is the most prominent among individual single-name ideas, with its Qwen models attracting a very large user base by early 2026. What distinguishes Alibaba from purely AI-focused companies is its distribution network. Qwen is already integrated within Taobao, Tmall, Amap, and Alipay. It possesses the capability to order food or to facilitate payments directly through Alipay. This development transforms AI from a mere inquiry instrument into a transaction tool. Risks persist, including intense competition and several recent departures of senior personnel.

Biotech represents another noteworthy narrative from Hong Kong that warrants attentive observation. Innovent Biologics announced its inaugural full fiscal year of IFRS profit in 2025. In May 2026, the company entered into an oncology agreement with Pfizer. The agreement was valued at up to US$10.5 billion, with an initial payment of US$650 million. The Chinese biotechnology sector is progressing from producing generics to obtaining licenses for global innovations.

None of this, of course, is insulated from wider geopolitics. Tensions between the United States and China, as well as the risks in the Taiwan Strait, continue to persist. Hong Kong assets would experience significant declines in the event of a severe decoupling. However, under normal circumstances, its cross-border infrastructure provides notable flexibility. It affords investors greater latitude than direct A-share exposure. This positions it as the probable testing ground for the entire thesis. The critical question is whether the AI cycle transitions into a broader capital market phenomenon.

Haodong He is a final-year Banking and Finance student at Monash University Malaysia who has just completed his internship in Hong Kong.

Dr Chithra Latha Ramalingam is a senior lecturer at Monash University Malaysia’s School of Business, where she researches socio-legal governance, ethics and climate change policy.

Dr Tee Chwee Ming is a senior lecturer and teaches finance at Monash University Malaysia.