Concerns regarding the long-termng due to a lack of profitability and the looming threat of Western restrictions
Trillions of dollars have been erased from Chinese stock markets in recent months as anxiety grows over the future of AI, a sector central to the ongoing technological rivalry between Beijing and the United States.
The STAR 50 Index, which monitors innovation and technology firms on the Shanghai exchange, has plummeted 40% since June. Other major market indexes have seen a decline of approximately 20% over the same timeframe.
The sharp downturn has resulted in $2.4tn being wiped from the Chinese stock market since May.
Because AI-related stocks represent more than 40% of the market capitalization in both China and Hong Kong, any significant decline in their value sends shockwaves throughout the entire domestic market.
This decline suggests that despite government efforts to bolster China’s tech industries—particularly those focused on AI—the domestic economy lacks the strength to sustain a booming market.
The Chinese government has poured significant capital into AI, including a 60bn yuan state-backed fund that began distributing money to domestic developers this month. However, Chinese consumers have remained hesitant to spend across various sectors, including technology, leaving many tech firms struggling to achieve profitability.
The absence of profits is a primary driver of the sell-off, compounded by the threat of Western nations, particularly the US, expanding bans on Chinese technology.
“This year, the profit margin is not as good as raising rates. And China’s domestic demand is so weak,” said Dan Wang, the China director for the Eurasia Group. She said that there was a “general anxiety” among technology companies about whether or not the state-backed model would work in the face of weak consumer demand.
The US has prohibited the import of Chinese humanoid robots, citing national security concerns, and is reportedly considering restrictions on the use of Chinese components within data centers. China relies heavily on exports, and US-imposed limitations hurt domestic companies that are already struggling to generate sufficient sales at home.
As China competes with the US for AI leadership, Beijing has prioritized robotics—often referred to as embodied AI—as a primary vehicle for deploying the technology across society. Robotics is also viewed as a solution to China’s demographic challenges, including an aging population and a shrinking workforce.
However, demand for robotics is currently driven by research institutions and government agencies rather than average consumers, for whom these products remain too expensive and impractical for home use. While robotic dogs and humanoid robots have gained traction in the entertainment sector, they have yet to prove useful in residential environments.
Shares in Unitree, a leading Chinese robot manufacturer, have fallen by half since their market debut in August.
“It doesn’t look like embodied intelligence could turn into profits in the in the mass market,” said Wang. Thin profit margins, rising rates in the US, and weak domestic demand were all contributing to a “general anxiety” among technology companies, she said.
The Chinese government is encouraging local investors to keep their capital within the country. While China has implemented restrictions on overseas investment in recent months, with new regulations taking effect on 1 December, these measures have not resulted in increased investment in domestic markets.
Wang noted that optimism persists in other technology sectors, such as satellite development and AI research, with the former benefiting from military ties that signal long-term state support. Globally, the AI boom is projected to continue for at least another year.
On Monday, the US-based AI firm Anthropic, creator of the chatbot Claude, filed documentation for a planned IPO that could become one of the largest stock market debuts in history. The company is anticipated to raise as much as $100bn.
China currently has no comparable blockbuster IPOs on the horizon. Furthermore, despite calls for policymakers to implement stimulus measures to encourage investment, no such actions are expected during this politically sensitive period.
This week, senior officials of the Chinese Communist party are convening for the fifth plenum, a critical meeting that will establish the framework for next year’s 21st Party Congress. The Congress is expected to confirm Xi Jinping, China’s leader, for a fourth term. There is little appetite for potentially destabilizing or risky policy maneuvers before that event, even if they might stimulate the economy.
Any stimulus effort would be “high risk,” Wang said. “What if it doesn’t work out? Then whoever came up with that policy, that guy would be held accountable”.
