Tech-friendly moves boost China's clout

China is poised to play an even bigger role in the global trade and economic system as its innovation-driven industrial policies strengthen domestic competitiveness and accelerate industrial self-reliance, said an executive of a global credit rating agency.

"The global supply chain is more fragmented but still interconnected, where China plays and continues to play a significant role, particularly and increasingly in some of these higher value-added and strategically important sectors," said Philipp Lotter, managing director and head of global ratings and research at Moody's Ratings, during a recent visit to Hong Kong and the Chinese mainland.

The push is expected to enhance China's capabilities in key strategic sectors, expand its domestic market and reduce vulnerability to external shocks.

Lotter said stability in Sino-US relations is an important factor for global economic and financial resilience.

The New York-based credit rating agency in April affirmed China's A1 sovereign credit rating and changed its outlook to stable from negative.

"What our revision of China's outlook to stable does reflect is that the country's economic and fiscal strength will remain resilient," Lotter said, adding that it also highlights China's policy effectiveness and strong policy coordination capability.

The A1 rating takes into account ongoing structural challenges, including periodic supply-demand imbalances and rising public-sector debt, but Moody's expects China to effectively maintain broad economic and financial system stability, he said.

"China will continue to benefit from what is a very large and diversified economy. The economy is increasingly complex and deep. There is a very strong capacity for innovation, and that will help offset some of those structural challenges, such as an aging population and slower growth. The economy is more robust because, unlike past peaks and troughs where growth was driven by sectors that were yielding diminishing returns, the policy emphasis today is on driving high quality growth," he said.

Moody's views generative artificial intelligence as a structural rather than a cyclical force, given its potential to reshape productivity and economic performance across sectors over time globally.

In China, Lotter said the development of generative AI is supported by three major factors. First, AI has become firmly embedded in the country's policy agenda, which prioritizes innovation, domestic demand and new growth drivers.

Second, China's vast domestic market enables large-scale deployment and rapid adoption of AI technologies across industries, led in part by major technology companies providing infrastructure, models and applications. Third, the country has built a strong ecosystem anchored by leading tech firms that are accelerating innovation and expanding AI use throughout the broader economy.

"AI is becoming part of the economy and a key driver of China's growth and competitiveness going forward," he said.

Regarding the impact of Middle East tensions on sovereign credit conditions, Lotter said that while China remains partly dependent on energy shipments through the Strait of Hormuz, it also has significant policy and economic buffers to mitigate potential disruptions.

"China has reasonably strong fiscal buffers, and its energy mix is also more diversified. This is where China's multiyear investment in the renewable sector is starting to pay off and provide advantages in this situation. I think on balance, particularly in comparison with the broader Asia region, China has a number of mitigating factors that can help absorb some of the shocks."

Standard Chartered said that unlike most large energy importers, China's exposure to Middle East oil and gas remains manageable, accounting for 6.5 percent of its total energy consumption. Risks are further mitigated by the country's sizable strategic crude reserves of approximately 1.2 billion barrels — equivalent to roughly 108 days of import cover.