CNBC’s The China Connection newsletter: A focus on AI, IPOs, diplomacy

Hi, this is Evelyn, writing to you from Beijing. Welcome to the latest edition of The China Connection — a snapshot of what I’m seeing and hearing from local businesses.

After a tumultuous start to the year, what certainties are companies counting on, and what will drive the economy beyond the summer months?

The AI frenzy and its economic implications have washed over much of China in the last six months. From AI chatbot wars during the Lunar New Year in February, to the subsequent OpenClaw AI agent craze, to widespread AI-generated videos capturing the public imagination and, finally, stock market gains, the technology is forming an ever-greater part of life in China today.

That’s not to mention a policy back-and-forth in the U.S. that briefly shut down Anthropic’s Mythos and Fable models, and helped send newly listed Knowledge Atlas skyrocketing into the trillion-Hong Kong dollar market cap club. The Chinese company, also known as Z.ai, released the open-source GLM 5.2 model that held the top performance ranking in coding while Fable was offline.

Critically, the gains in tech stocks, which account for some 30% of the mainland China A-share market, are helping put a floor under struggling property markets in major Chinese cities, said Nomura’s chief China economist Ting Lu.

More IPOs, including that of autonomous driving company Momenta in Hong Kong on Wednesday, are on the calendar, echoing the excitement in the U.S. over big-name listings.

But are animal spirits running too high? The summer holidays, which officially began in China on July 1, may just mark the lull before the storm.

The most-anticipated event of the first half of the year was U.S. President Donald Trump‘s trip to Beijing, which went ahead in May after being delayed by the Iran war.

Trump’s visit helped preserve a thaw in U.S.-China tensions. U.S. businesses rushed to ramp up orders from Chinese suppliers, before a stricter tariff regime is set to start later this month.

However, a pre-set schedule may keep relations stable for a while longer.

Chinese President Xi Jinping is due in the U.S. in late September. After the U.S. midterm elections, Trump and Xi are expected to meet in November during the APEC summit in Shenzhen.

With four months to go, the city was already preparing for the event, with promotional banners and whispers of tech showcases. It is the Silicon Valley of China, after all.

Meanwhile, around 60 million more railway trips are expected this summer compared to last year, among 1.01 billion overall passenger journeys, according to Chinese state media. Social media posts evoke excitement over sold-out summer events such as Bilibili World that features merchandise based on characters popular on the streaming and gaming company’s app.

It’s less clear whether that’s enough to reverse a slump in retail sales.

“Holiday spending is still constrained by a weak labor market,” Morgan Stanley’s chief China economist Robin Xing and a team wrote in a June 28 report.

“We expect Beijing to step up a capex-centric fiscal rollout starting in 3Q, primarily focused on Al and power grids rather than consumption,” the analysts said.

China’s parade of tech achievements will pick up in the interim.

Shanghai hosts the state-organized World AI conference in mid-July, at which Xi is expected to speak, according to The Asia Group Partner George Chen. The event organizers did not respond to a request for comment. Later in August, Beijing holds its World Robot Conference.

“The overall AI growth story remains intact and, while the narrative has evolved over the past couple of years, we are still in the early days of the AI revolution,” said Perris Lee, head of equity capital markets for Asia Pacific at Mergermarket, noting how robust listing activity in Hong Kong reflects the fact that “investors continue to be enthusiastic.”

“Geopolitical tensions remain a key risk,” Lee said. “It is still unclear whether we have seen the full impact of higher oil prices, and ongoing conflicts and broader geopolitical uncertainty could continue to affect investor sentiment and capital markets activity in the second half of the year.”

As the money pours into AI and the rest of the economy tries to get a lift from exports and tourism, there’s a lingering question of when the music will stop.

Brussels aims to reduce its trade deficit with China by October, just as a historic heat wave sends locals rushing to buy Chinese-made air conditioners. Meanwhile, Beijing widens Japan export curbs, targeting drone makers, nuclear firms and defense institutes.

Alibaba-affiliate Ant Group rushes into humanoid robots with a dozen deals in 18 months

For its latest sector bet, Ant Group led a 500 million yuan ($73.58 million) funding round in Zeroth. In the stock market, short interest in Pop Mart climbed to 12.67% of shares outstanding as of June 30, up from 11.3% in April, according to S&P Global Market Intelligence data. That’s despite 8% gains since its year-to-date low in April.

Xi touts China Communist Party’s global influence in speech marking 105th anniversary

The Chinese Communist Party has “deeply changed the trend and trajectory of the world’s development through relentless struggle,” Xi Jinping said, according to a CNBC translation from Mandarin.

July 10 – 12: Bilibili World in Shanghai

July 14: China trade data for June