Trillions of dollars have been wiped from China's stock markets in recent months as investors worry about the sustainability of the country's artificial intelligence push in competition with the United States. The STAR 50 Index, which tracks technology and innovation companies on the Shanghai stock exchange, has fallen 40 percent since June, while other major indexes have dropped about 20 percent in the same period. According to Bloomberg, these declines have erased $2.4 trillion from the Chinese stock market since May.
The scale of the losses reflects how concentrated Chinese markets have become in technology. Goldman Sachs said that AI stocks account for over 40 percent of the stock market value in China and Hong Kong, meaning declines in the sector reverberate across the entire domestic market. The Chinese government has tried to support the sector, including launching a 60 billion yuan state-backed AI investment fund that began deploying capital to domestic developers this month. Yet the strategy faces fundamental challenges.
Profitability remains elusive for many technology companies in China. Chinese consumers have been reluctant to spend on technology and other sectors, leaving many firms struggling to generate returns. Dan Wang, China director for the Eurasia Group, said the lack of profits, combined with rising interest rates in the US and weak domestic demand in China, has created a "general anxiety" among technology companies about whether the state-backed model can succeed. The US ban on humanoid robots from China and potential restrictions on Chinese components in data centres add to these concerns, as Chinese firms depend heavily on exports.
Beijing has pursued robotics, also known as embodied AI, as a way to deploy artificial intelligence across society and address demographic challenges including an ageing population and shrinking workforce. However, demand for robotics has come from government agencies and research institutions rather than consumers, for whom the products remain too expensive and impractical. Unitree, China's leading robot-maker, has seen its shares halve since starting to trade in August. Wang said the sector "doesn't look like embodied intelligence could turn into profits in the mass market."
The contrast with the US technology sector is stark. Anthropic, a US AI company, filed paperwork on Monday for a planned initial public offering that could raise as much as $100 billion. China has no comparable blockbuster IPOs on the horizon. Policymakers face political constraints on introducing stimulus measures during a sensitive period when top Communist Party officials are gathering for the fifth plenum, an important meeting that will prepare the groundwork for next year's 21st Party Congress. Wang noted that any stimulus measure would be "high risk" for officials who propose it.
For Chinese savers, borrowers, businesses and investors, the sharp decline in market values reflects mounting uncertainty about whether domestic technology companies can compete globally while relying on a consumer base reluctant to spend and facing restrictions from Western governments.