One of the top themes year-to-date has been China-focused technology ETFs. China technology stocks have surged on AI enthusiasm related to China startup DeepSeek’s AI model launch. DeepSeek’s powerful, cost-efficient AI model has raised the country’s status in the global race for AI superiority. This enthusiasm has spread to other China tech names, including Alibaba, Baidu, Xiaomi, BYD and others. The Hang Seng Tech Index, which tracks the top 30 China tech stocks, is up almost 30% for the year.

At the end of last year, I suggested that China might become a Cinderella success story in 2025, given cheap valuations and government stimulus intended to get ahead of tariffs. Certainly, the DeepSeek announcement has been a lightning rod catalyst as well.

China Dragons

Many ETFs are benefiting from the rally in the China market and, specifically, in China technology companies. At the top of the list is the Roundhill China Dragons ETF (DRAG), which offers equal-weighted exposure to five to ten Chinese stocks, selected based on their size and innovation. In essence, this ETF is the Chinese equivalent to the U.S.’s Magnificent Seven. DRAG’s current portfolio roster includes Alibaba, Baidu, BYD, JD.com, Meituan, NetEase, PDD Holdings, Tencent, and Xiaomi. This approach has delivered a 32.11% return YTD, outperforming the Hang Seng Tech Index.

Invesco also has a dragon-themed ETF, the Invesco Golden Dragon China ETF (PGJ). The ETF tracks the NASDAQ Golden Dragon China Index, which has 65 holdings. This less tech-focused, diversified approach tracks a broad-based, consumer-focused index. It currently includes Alibaba, JD.com, Trip.com, and Yum China among its top holdings. This dragon has less fire and is up only 18% YTD.

China Tech ETFs

KraneShares has two ETFs focused on China technology exposure. The KraneShares Hang Seng Tech Index ETF (KTEC) is up 31.3% YTD, and the KraneShares CSI China Internet ETF (KWEB) is up 25.3%. Invesco also has a China version of its QQQ franchise, the Invesco China Technology ETF (CQQQ), which has advanced 25.6%.

Leveraged China Plays

For investors wanting to leverage their China bets on a key security, GraniteShares offers the GraniteShares 2x Long BABA Daily ETF (BABX) tied to Alibaba’s performance. Meanwhile, Direxion has the Direxion Daily FTSE China Bull 3X Shares (YINN) and the Direxion Daily CSI China Internet Index Bull 2x Shares (CWEB). These ETFs have gained 174%, 61%, and 53% YTD, respectively. ProShares also has the lower-octane ProShares Ultra FTSE China 50 ETF (XPP), which has delivered a 39.2% return YTD.

Broader China ETFs

There are also many more broadly diversified China ETFs, such as the iShares MSCI China ETF (MCHI), the Franklin FTSE China ETF (FLCH), and the SPDR S&P China ETF (GXC).

Targeted China ESG Plays

One targeted China ESG play of note is the WisdomTree China ex-State Owned Enterprise Fund (CXSE), which, as the name suggests, excludes China state-owned companies. It is up 17.6% YTD. According to WisdomTree, privatized enterprises have historically outperformed state-owned companies, likely because governments put their own priorities ahead of those of shareholders. Government-owned enterprises are less efficient from a relative ROA and ROE standpoint.

For those looking to harness the power of China’s green energy revolution, there is the KraneShares MSCI China Clean Technology Index ETF (KGRN), which has rallied 18.3% YTD. Although clean energy companies face headwinds in the U.S., China continues to invest heavily in clean energy technology, pouring 6.8 trillion yuan ($940 billion) into clean energy in 2024, according to Carbon Brief.

China Outlook 2025 Mixed

Due to an economic bump in the latter half of the year, China’s economy ultimately saw 5% growth in 2024. The upside in Q4 was tied to government stimulus efforts ahead of the U.S. election to offset potential tariffs. However, U.S. tariffs on the country’s goods aren’t off the table yet. China’s structural economic challenges, including debt and economic fallout from the property bubble bursting, also remain a long-term headwind.

Continued stimulus and a more gradual approach to tariffs could be enough to attract investors looking for bargains, especially given that China’s markets have already priced in a lot of bad news. Over the last three years, the iShares MSCI China ETF (MCHI) was up only a paltry 0.75% on an annualized basis. In addition to cheap valuations, China’s recent technology symposium, which was attended by China’s President Xi Jinping, and DeepSeek’s AI breakthrough have helped spark hopes for a technology renaissance in China.

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