Chinese Stock Markets Shed Trillions as AI Race With US Weighs on Investors

Chinese stock markets have lost trillions of dollars in value in recent months as investors grow nervous about the future of artificial intelligence and Beijing's contest with the United States for leadership in the field.

The STAR 50 Index, which follows technology and innovation firms listed in Shanghai, has fallen 40% since June. Other indexes covering major companies have slipped by roughly 20% over the same period. Bloomberg reports that the declines have erased $2.4tn from Chinese equities since May.

The stakes are high for the wider market. Goldman Sachs says AI stocks make up more than 40% of the market value in China and Hong Kong, so any damage to the sector spreads quickly across the domestic market.

The slump suggests that government efforts to lift the technology industry, and AI in particular, cannot on their own create a lasting boom. Beijing has put substantial money into the field, including a 60bn yuan state-backed AI investment fund that began channelling capital to domestic developers this month. Yet Chinese consumers have remained reluctant to spend across much of the economy, technology included, and many tech companies struggle to make a profit.

Weak earnings are only one factor. Another is the risk that Western countries, the US above all, will widen bans on Chinese technology. Washington has barred humanoid robots from China, citing national security concerns, and is thought to be weighing a ban on Chinese components in data centres. Because China depends heavily on exports, such curbs hurt companies that already cannot sell enough at home.

"This year, the profit margin is not as good as expected. And the US is raising rates. And China's domestic demand is so weak," said Dan Wang, the China director for the Eurasia Group. She described a "general anxiety" among technology firms over whether the state-backed model can work when consumer demand is so soft.

Robotics, also called embodied AI, has been a particular focus for Beijing, which sees it as the way to spread AI through society and as a response to demographic pressures such as an ageing population and a shrinking workforce. But demand is coming mainly from government agencies and research institutions. For ordinary consumers the products remain too costly and impractical for the home. Shares in Unitree, China's leading robot-maker, have halved since they began trading in August. "It doesn't look like embodied intelligence could turn into profits in the mass market," Wang said.

The government wants domestic investors to keep their money at home. It has restricted overseas investment in recent months, with further rules taking effect on 1 December, but the measures have not drawn more money into Chinese markets. Wang noted that optimism persists in other areas, such as AI research and satellites, the latter because military links point to lasting state backing. Globally, the AI boom is expected to continue for at least another year.

The contrast with the US is stark. On Monday, Anthropic, the American company behind the chatbot Claude, filed paperwork ahead of a planned IPO that could be the largest stock market debut of all time, with as much as $100bn expected to be raised. China has no comparable listings on the horizon.

Stimulus is also unlikely soon, despite pressure on policymakers. Senior Communist party officials are meeting this week for the fifth plenum, which will prepare the ground for next year's 21st Party Congress, where Xi Jinping is expected to be given a fourth term. Wang said there is no appetite for risky measures beforehand, and that any stimulus would be "high risk". "What if it doesn't work out? Then whoever came up with that policy, that guy would be held accountable."