CNBC's The China Connection newsletter: AI wins come with an old investor risk

In Beijing, Evelyn reports on China's tech advancements and the concerns they cause for foreign investors. While China's tech progress is impressive, it raises doubts among investors due to policy communication issues. A recent probe into Fang Xinghai, China's former vice chair of securities regulator, highlights this concern. Despite his Stanford education and notable achievements, the probe has sparked debate in China, focusing on his support for algorithm-driven quantitative trading.

This has drawn criticism for causing market losses, despite the rise of AI champions such as DeepSeek. Liqian Ren, a quantitative manager, suggests that better communication from China could improve investor confidence. Chinese market volatility is attributed not to quantitative trading but to the "unexpected" nature of policy disclosures.

Notable examples include Trip.com's stock plunge due to an alleged monopolistic investigation and Futu's significant drop following a renewed crackdown on cross-border trading. These events illustrate the unpredictable nature of China's policies, which often leave investors scrambling to understand the implications. Despite these risks, Chinese stocks have not generated returns that significantly outperform U.S. stocks and bonds, making it difficult for foreign investors to overlook these risks.

BlackRock's neutral view on Chinese stocks and focus on individual AI opportunities reflects this cautious approach. The MSCI's decision to add CXMT, a state-backed memory chip company, to its index signals some progress in attracting foreign investment. However, the success of China's AI advancements remains uncertain, as its chip breakthrough faces challenges in yield and adoption.

China's increasing restrictions on Chinese goods have strained U.S.-China relations, with Beijing threatening retaliation against the U.S. ban on humanoid robots, which it sees as "severely damaging" to relations.