China has put artificial intelligence at the heart of its development and security plans. The goal is to lead in key technologies and strengthen national security. The “AI+ initiative” and the 2026–2030 Five-Year Plan are expected to make AI a top priority.
This push is meant to lift productivity and support growth as China deals with an ageing population and changes in its main sources of economic momentum. Wider use of AI across the economy is expected to be a core part of that plan.
Chinas Global Ai Supply Chain Position
China’s role in global AI supply chains is strengthened by its control of critical materials and its existing AI infrastructure. Reliable energy and access to capital also help.
Compared with the United States, China has narrowed the gap in recent years through faster innovation and large-scale investment. This has helped China build a strong position in global AI.
China’s plan to centre more of its economy on AI will keep driving the tech rivalry with the United States. As details of the 2026–2030 Five-Year Plan emerge, markets should expect new state-backed programmes that can move specific company valuations. That can create short-term volatility, which often suits options strategies.
Semiconductors remain the clearest way to trade this tension. In 2025, Washington expanded export controls that restricted China’s access to advanced chips. This slowed progress even as China increased domestic investment. Traders should watch for any new restrictions. If they come, implied volatility could rise for US chipmakers like NVIDIA and AMD, while sentiment could weaken for Chinese firms such as SMIC.
Critical Materials And Market Volatility
China’s dominance in critical materials is another major lever. In 2025, China produced more than 70% of the world’s rare earths. Its export limits on gallium and germanium also triggered supply shocks. If the rivalry escalates, more controls are possible. That could create opportunities to use derivatives to position for higher prices in mining firms operating outside China.
This friction can move whole markets, not just single stocks. During 2025, new US tech sanctions on China were often followed by a 5–10% rise in the VIX, showing broader investor anxiety. Traders may use this pattern to buy short-term VIX call options, or buy puts on the Nasdaq 100, to hedge or to speculate on the next policy shift.
Large-cap tech stocks may also split based on how exposed they are to the conflict. Last year, US cloud providers benefited from higher investment tied to the CHIPS Act, which has committed more than $39 billion to domestic manufacturing. This can create pair-trade setups, such as going long a US AI leader while shorting a Chinese peer that is more exposed to supply-chain sanctions.
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