Core Viewpoint - A structural transformation is occurring in the Chinese economy, characterized by a concentration of capital and technology in leading enterprises, particularly in AI and high-end manufacturing, while employment and consumption lag behind [1][2][3] Group 1: AI Technology Breakthrough - The domestic AI model DeepSeek has achieved significant breakthroughs, showcasing higher reasoning efficiency and local computing compatibility, marking a shift towards commercial expansion of Chinese AI models [1][2] - The valuation logic in the capital market is changing as Chinese AI companies transition from relying on foreign technology to establishing their own core capabilities, leading to a re-evaluation of their long-term growth potential [2][3] - A significant concentration of investment is observed in leading AI firms, with the DeepSeek index rising by 41.61% from February 4 to March 18, 2025, compared to a mere 22.37% increase in the Hang Seng Index during the same period [2][3][6] - The "winner-takes-all" dynamic is evident, where investment flows heavily favor a few leading companies, creating a feedback loop that enhances their competitive edge [3][4][6] Group 2: Industrial Upgrade and Concentration - High-end manufacturing is increasingly reliant on strong R&D capabilities and system integration, with government support favoring leading firms capable of overcoming technical challenges [9][10] - The concentration of capital in high-end manufacturing is not due to a lack of innovation among smaller firms, but rather the necessity for complete industrial chain support and strategic execution aligned with policy [10][11] - The average price-to-earnings ratio of leading firms in the industrial mother machine sector increased by over 20% in 2024, while second-tier firms saw declines, indicating a clear preference for established leaders [10][11] Group 3: New Cycle of Tech Investment and Employment Market - Despite a surge in tech investment, the employment market is experiencing structural challenges, with a significant drop in venture capital investment events, down nearly 50% from 2021 highs [13][15] - The investment focus has shifted towards a few hard-tech sectors, leaving traditional employment-intensive industries underfunded and shrinking, leading to a mismatch in job supply and demand [19][20] - The automation trend is exacerbating employment issues, as companies like BYD see revenue growth outpacing employee growth, reducing overall job absorption capacity [22][25] Group 4: Policy Expectations and Economic Structure - The current macroeconomic policy is transitioning towards structural adjustments, emphasizing quality and stability over broad stimulus measures [26][27] - The government faces a dual challenge of advancing key technologies while ensuring employment stability, leading to a more nuanced approach to economic policy [27][28] - Recent policy measures indicate a shift towards supporting strategic sectors like AI and high-end manufacturing, while traditional industries may continue to face valuation challenges [28][29] Group 5: Asset Allocation Recommendations - The core assets in the AI sector are now driven by engineering capabilities and profitability rather than mere policy support, indicating a shift towards long-term asset allocation [30][31] - Investment strategies should focus on defensive assets, leading AI firms, and safety assets like gold and military equipment, reflecting the current market dynamics and policy direction [33]