China has placed artificial intelligence at the centre of its development and security plans, with the aim of extending technological dominance and strengthening national security. The “AI+ initiative” and the 2026–2030 Five-Year Plan are set to prioritise AI.
The policy focus is intended to support productivity and growth as China faces demographic pressures and shifts in its main economic drivers. AI deployment across the economy is expected to be part of this approach.
Chinas Global Ai Supply Chain Position
China’s position in global AI supply chains is supported by control of critical materials and established AI infrastructure. Energy and access to capital are also described as enabling factors.
In comparison with the United States, China has been closing the gap in recent years through faster innovation and large-scale investment. The article says this has contributed to China’s strong standing in AI worldwide.
China’s strategy to center its economy on artificial intelligence will continue to fuel the tech rivalry with the United States. With the 2026–2030 Five-Year Plan soon to be detailed, we should expect a series of state-backed initiatives that will directly impact specific company valuations. This creates a volatile environment that is ideal for option strategies in the coming weeks.
The semiconductor sector remains the most direct way to trade this tension. We saw in 2025 how Washington’s expanded export controls successfully limited China’s access to advanced chips, slowing their progress despite massive domestic investment. Traders should watch for any new restrictions, which would likely increase the implied volatility on US semiconductor firms like NVIDIA and AMD, and depress sentiment for Chinese champions like SMIC.
Critical Materials And Market Volatility
We must also consider China’s dominance in critical materials as a key weapon. Looking back at 2025, China’s share of global rare earth production stood at over 70%, and we all remember how its export restrictions on gallium and germanium created supply shocks. Any escalation in the tech rivalry could trigger further controls, presenting an opportunity to use derivatives to bet on rising prices for mining companies operating outside of China.
This geopolitical friction will affect broad market indices, not just individual stocks. Throughout 2025, announcements of new US tech sanctions on China consistently led to a 5-10% jump in the VIX, reflecting widespread market anxiety. This predictable pattern allows traders to buy short-term VIX call options or puts on the Nasdaq 100 to hedge or speculate on the next policy move.
The performance of large-cap tech stocks will likely diverge based on their exposure to this conflict. We saw last year how US cloud providers benefited from increased investment driven by the CHIPS Act, which has now committed over $39 billion to domestic manufacturing. This creates opportunities for pair trades, such as going long on a US AI leader while simultaneously shorting a Chinese equivalent that is more vulnerable to supply chain sanctions.
