China’s tech stocks lose $2.4 trillion as AI bets stall

The value of Chinese stocks has dropped by $2.4 trillion since May, according to Bloomberg. This decline follows a sharp fall in the price of technology shares, which has eroded investor confidence in the country’s artificial intelligence sector. The loss represents a major shift in the market after months of high valuation.

The STAR 50 Index, which tracks technology and innovation firms on the Shanghai stock exchange, has plunged 40% since June. Broader indexes for major Chinese companies have also fallen, with drops of about 20% over the same period. Goldman Sachs notes that AI stocks make up more than 40% of the total market value in China and Hong Kong, so the decline in this sector affects the entire market.

Dan Wang, the China director for the Eurasia Group, points to weak domestic spending as a primary cause of the sell-off. She stated that this year’s profit margins are not as good as expected, while US interest rates are rising and Chinese demand remains soft. Wang described a general anxiety among tech firms about whether the state-backed model can succeed without strong consumer support. She added that it does not look like embodied intelligence will turn into profits in the mass market soon.

The Chinese government has responded with a 60 billion yuan state-backed AI investment fund that began distributing money to domestic developers this month. However, consumers have remained reluctant to spend on technology, making it difficult for companies to turn a profit. The United States has also banned Chinese humanoid robots for national security reasons and is considering restricting Chinese components in data centers. These export controls hurt domestic firms that rely on sales to foreign markets.

Beijing is pushing robotics, or embodied AI, as a solution to the country’s aging population and shrinking workforce. Yet demand for these machines is currently driven by government agencies and research institutions rather than households. Products like humanoid robots and robotic dogs are popular in entertainment but are still too expensive and impractical for most homes. Shares in Unitree, a leading Chinese robot maker, have halved since the company began trading in August.

China has restricted overseas investment in recent months, with new regulations taking effect on December 1, to encourage local investors to keep their money at home. These moves have not yet resulted in greater investment in domestic markets. Wang noted that optimism remains in sectors like AI research and satellites, the latter benefiting from long-term military support. Globally, the AI boom is expected to continue for at least another year.

On Monday, Anthropic, a US AI company behind the chatbot Claude, filed for an initial public offering that could raise up to $100 billion. China has no similar blockbuster IPO planned. Policy makers are under pressure to introduce stimulus measures, but few are expected during the current politically sensitive period. Top party officials are gathering this week for the fifth plenum, which sets the stage for the 21st Party Congress next year. The Congress is expected to anoint Xi Jinping for a fourth term, and officials are avoiding risky policy changes before the meeting. Wang warned that any stimulus would be high risk, as the person who proposed it would be held accountable if it failed.