A recent article by Nikkei Asia, “China’s ‘Seven Titans’ tech stocks slump as deflation overpowers AI boom” (scan QR code), laid the blame for the titans’ sluggish performance on deflationary pressures due to weak domestic demand. This is an oversimplification. While it is true that China’s economic involution, characterised by a cut-throat, fight-to-the-death price war, has contributed to weakening corporate profitability, the underlying root cause is less about domestic demand than it is about the fact that China is building intensely competitive and deep industry ecosystems. This is precisely the core thesis of our main article.
The US equity market has significantly outperformed Chinese stocks in recent years, led by tech and related energy and industrial sectors, driven by the artificial intelligence (AI) infrastructure boom. This is underscored by the huge market gains of the US’ “Magnificent Seven” stocks compared with the equivalent Chinese “Seven Titans” (the seven leading Chinese tech companies comprising Alibaba Group, Tencent, BYD, Xiaomi, JD.com, NetEase and Semiconductor Manufacturing International Corp [SMIC]) (see Charts 1 and 2).
