Private equity managers with a focus on Asia are increasingly optimistic about the prospects of the world’s second-largest economy. They are wagering on China’s push for technological independence and its swift integration of new technologies to fuel its next growth phase.

Jean Eric Salata, the chairman of EQT Asia, expressed that the strategic goals set forth in China’s latest five-year plan are expected to strengthen the nation’s position in advanced manufacturing. This move is also anticipated to spur investments in technology and artificial intelligence while increasing consumer spending.

“I’m genuinely optimistic about China’s future — and consequently, very optimistic about Hong Kong,” Salata remarked during the Global Financial Leaders’ Investment Summit on Wednesday.

He highlighted China’s swift progression in automated manufacturing as evidence of the country’s growing capabilities. “It’s truly astonishing,” he noted, referencing the automation at Xiaomi’s electric vehicle facilities: “there are very few people, but a lot of robots.”

Zhang Lei, founder and chairman of Hillhouse Investment, said China’s strength lies in its ability to commercialize artificial intelligence quickly. “China will likely be the first to deliver much more on the AI application layers,” he said, citing rapid product iterations, lower costs, open-source models, and a massive consumer base willing to embrace new technologies.

Chinese tech companies have made big strides in AI development and application this year, lifting several Wall Street Banks’ forecasts for the country’s economic growth.

In the economic development plan for the upcoming five years, Beijing pledged more efforts to achieve self-reliance in advanced technologies such as quantum computing and hydrogen power, as the country seeks to bolster its position in its tech rivalry with the U.S.

Fred Hu, chairman and CEO of Primavera Capital, echoed Lei’s sentiment. “I am very, very confident China will be a leader in the AI revolution,” he said, pointing to the country’s engineering talent and computing power.

Hu noted that China’s electricity generation capacity — at 3.7 terawatts — is more than three times that of the U.S., in addition to the fresh capital flowing into power infrastructure, creating “tremendous promise in AI revolution.”

The optimism signals a subtle yet important shift for an industry that has spent the past two years grappling with weak fundraising and geopolitical uncertainty. Western investors have retreated amid simmering U.S.-China tensions, leaving deal volumes and fund launches at multi-year lows.

Private equity firms completed just 93 deals in China as of end-September, compared with 279 for all of 2024 and 562 in 2022, according to PitchBook data — putting the market on track for its weakest year in more than a decade.

Fundraising has similarly declined, with firms raising only $3.6 billion as of June, compared to $23.6 billion a year earlier. The number of new PE funds in China has plunged from 144 in 2021 to just 14 this year.

Still, a rebalancing of investment allocation is underway, as global investors, heavily weighted toward dollar-denominated assets, reassess their portfolios, creating an opportunity for more capital to flow back to Asia, according to EQT’s Salata.

“They’re looking at diversification,” he said, predicting mainland China and Hong Kong to be major beneficiaries of that portfolio reallocation.