Emerging Chinese Tech Mid-Caps Beyond the Internet Giants

The global tech landscape is shifting as Chinese mid-cap companies in AI infrastructure, semiconductors, and industrial automation emerge as compelling investment opportunities. While the spotlight often remains on internet giants like Alibaba and Tencent, a new cohort of firms is capitalizing on Beijing's strategic push for technological self-reliance, geopolitical tailwinds, and surging demand for automation. These mid-caps, often overlooked by mainstream investors, are now at the forefront of a transformative wave driven by policy support, corporate R&D, and sector-specific innovation.

AI Infrastructure: Tencent's Domestic Chip Pivot and Market Expansion

Tencent Cloud's recent integration of domestic Chinese chips into its AI computing infrastructure underscores a pivotal shift in the sector. By fully adopting locally produced semiconductors, Tencent aims to reduce reliance on foreign technology—a move aligned with Beijing's broader strategy to counter U.S. export restrictionsChinese corporations ramp up investments in AI and chips startups^[1]. This transition has positioned Tencent as the fourth-largest AI cloud services provider in China, with a 7% market share in H1 2025Chinese corporations ramp up investments in AI and chips startups^[1]. The company's collaboration with local chipmakers to optimize hardware-software co-design further highlights the growing maturity of China's AI ecosystemChinese corporations ramp up investments in AI and chips startups^[1].

Meanwhile, startups like Silang Technology and Puzhao Materials (which secured a $102 million Series B round in February 2025) are gaining traction for their roles in high-performance computing and photomask manufacturingChinese corporations ramp up investments in AI and chips startups^[1]. These firms exemplify the surge in corporate-backed funding for AI infrastructure, with 11 of 42 Q1 2025 venture rounds targeting IT and semiconductor startupsChinese corporations ramp up investments in AI and chips startups^[1].

Semiconductors: Navigating Export Controls and Scaling Domestic Capacity

The Chinese semiconductor industry is rapidly scaling, with mid-cap firms like Will Semiconductor Co. Ltd. ($21.73 billion market cap) and Zhaoxin leading the charge. Zhaoxin's deployment of the DeepSeek-R1 AI model across its hardware lineup in 2025 demonstrates how domestic chipmakers are integrating advanced AI capabilities into industrial and government applicationsChinese corporations ramp up investments in AI and chips startups^[1]. Similarly, Nexchip Semiconductor reported a 151.7% year-over-year net profit surge in 2024, driven by demand for display driver ICs and mature-node semiconductorsChinese corporations ramp up investments in AI and chips startups^[1].

Government policy remains a critical catalyst. The $41 billion allocated to wafer fabrication in 2024China’s AI Funding Spree: Why Alibaba, Baidu Are Tapping Bond Markets^[2] and the $140 billion state-backed venture fund announced in Q3 2025Chinese government to invest $140 billion in robotics and high-tech industries^[4] are accelerating domestic production. By 2024, Chinese foundries had already captured 18% of the global market share in mature nodesChina’s AI Funding Spree: Why Alibaba, Baidu Are Tapping Bond Markets^[2], a figure expected to rise as firms like Silergy (specializing in analog and power management ICs) scale their operations. The semiconductor industry's average P/E ratio of 45.63 as of September 2025China’s AI Funding Spree: Why Alibaba, Baidu Are Tapping Bond Markets^[2] reflects investor optimism about long-term growth, despite short-term challenges from U.S. export controls.

Industrial Automation: Policy-Driven Growth and Global Partnerships

Industrial automation is another underfollowed sector with significant upside. Companies like Inovance Technology and SUPCON Technology are benefiting from the "Made in China 2025" initiative, which prioritizes robotics, AI integration, and smart manufacturingUnderstanding the Growing Industrial Automation Market in China^[5]. The sector's expansion is further fueled by rising labor costs and the need for efficiency, with foreign firms like ABB and Rockwell Automation expanding their Chinese operations to meet demandChinese government to invest $140 billion in robotics and high-tech industries^[4].

Policy support is equally robust. The government's $8.5 billion allocation for young AI companies in 2025Chinese corporations ramp up investments in AI and chips startups^[1] and its focus on "Specialized SMEs" (or "Little Giants") are fostering innovation in robotics and industrial components. For instance, Zhaoxin's AI-enhanced industrial automation solutions are being adopted in sectors ranging from energy to logisticsChinese corporations ramp up investments in AI and chips startups^[1].

Financial Metrics and Valuation Trends

While specific Q1-Q3 2025 revenue figures for mid-caps remain sparse, broader market indicators are encouraging. The Shanghai stock market's trailing P/E of 14.80 and forward P/E of 13.21 as of July 2025China SSE Stock Market P/E & Earnings 2025^[3] suggest a relatively attractive valuation environment. In contrast, the semiconductor and electronic components industries trade at premium P/E ratios of 45.63 and 40.47, respectivelyChina’s AI Funding Spree: Why Alibaba, Baidu Are Tapping Bond Markets^[2], reflecting their high-growth potential.

Capital expenditures by tech giants like Alibaba (planning a $53 billion investment in cloud and AI infrastructure over three yearsChina’s AI Funding Spree: Why Alibaba, Baidu Are Tapping Bond Markets^[2]) are also spilling over into mid-cap suppliers. For example, United Nova Technology and Nexchip are securing contracts for industrial and automotive semiconductors, while Cambricon Technologies and Enflame Technology are closing the gap in AI chip R&DChinese corporations ramp up investments in AI and chips startups^[1].

Risks and Strategic Considerations

Investors must remain mindful of geopolitical risks, including U.S. export controls and global supply chain disruptions. However, the Chinese government's aggressive subsidies, coupled with the sector's focus on cost-efficient hardware-software integrationChinese corporations ramp up investments in AI and chips startups^[1], position mid-caps to outperform in the long term. Additionally, the $506 billion projected size of the semiconductor market by 2032China’s AI Funding Spree: Why Alibaba, Baidu Are Tapping Bond Markets^[2] offers a vast runway for growth.

Conclusion

Chinese mid-cap tech firms in AI infrastructure, semiconductors, and industrial automation represent a compelling investment thesis. With government backing, corporate R&D, and a favorable macroeconomic environment, these companies are not only mitigating geopolitical risks but also driving innovation in critical sectors. As the global AI race intensifies, underfollowed mid-caps may offer superior returns compared to their overvalued internet peers.