Chinese stock markets have lost $2.4 trillion in value since May as investors react to growing anxiety regarding the future of the artificial intelligence sector. The STAR 50 Index, which tracks technology and innovation companies on the Shanghai stock exchange, has plunged 40% since June, while other major indexes have dropped approximately 20% during the same period.
AI stocks represent over 40% of the total stock market value in China and Hong Kong, according to Goldman Sachs. This high concentration means fluctuations in the AI sector have significant impacts on the broader domestic market. The decline follows heavy government investment, including a 60bn yuan state-backed AI investment fund that began distributing capital to domestic developers this month.
Several factors are driving the market decline, including weak domestic consumer demand and the threat of expanded bans from the United States. The U.S. has already banned humanoid robots from China due to national security risks and is reportedly considering restrictions on Chinese components for data centers. Because China relies heavily on exports, these restrictions hinder domestic companies that already struggle to find sufficient buyers within their own borders.
“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. Wang noted a "general anxiety" among technology firms regarding whether the state-backed economic model can succeed while consumer demand remains low.
Beijing has attempted to pivot toward robotics, or embodied AI, to address demographic challenges like an aging population and a shrinking workforce. However, demand for these technologies is currently driven by research institutions and government agencies rather than consumers, as products remain too expensive and impractical for home use. Shares in Unitree, a leading Chinese robot-maker, have halved since they began trading in August.
While the government has implemented regulations to restrict overseas investment and encourage domestic spending, these measures have not yet revitalized the markets. While some sectors like satellite technology show optimism due to military links, the broader AI market faces a period of uncertainty as China prepares for the fifth plenum of the Chinese Communist party.
