China Tech Stocks Lose Trillions

Chinese equity markets have lost $2.4 trillion in value since May, according to Bloomberg.

The STAR 50 Index, which tracks technology and innovation firms on the Shanghai stock exchange, has fallen 40 percent since June. Other major company indexes have dropped approximately 20 percent over the same period. Goldman Sachs reports that AI stocks represent over 40 percent of the total stock market value in China and Hong Kong, meaning declines in this sector impact the wider domestic market.

Beijing has sought to support the industry through a 60 billion yuan state-backed AI investment fund that began funding domestic developers this month. However, consumer spending remains weak, making it difficult for tech firms to generate profits. Dan Wang, China director for the Eurasia Group, noted that profit margins are lower than expected, US interest rates are rising, and domestic demand is weak. She described a general anxiety among tech companies regarding the viability of state-backed models in this environment.

External pressure from the United States also contributes to the decline. Washington has banned Chinese humanoid robots on national security grounds and is considering restrictions on Chinese components in data centers. China relies heavily on exports, so these limits hurt domestic companies that struggle to sell enough products at home. Shares in Unitree, a leading Chinese robot maker, have halved since the company began trading in August.

The government is prioritizing robotics, or embodied AI, to address demographic issues such as an aging population. Current demand for these robots comes primarily from government agencies and research institutions rather than households, where products remain expensive and impractical. Wang stated that embodied intelligence does not yet look like it will generate profits in the mass market.

Policy changes intended to keep investment domestic have not yet boosted market confidence. New regulations restricting overseas investment take effect on 1 December. Wang observed that optimism persists in specific areas like AI research and satellites, the latter benefiting from military links. Globally, the AI boom is expected to continue for at least another year. In the United States, Anthropic filed paperwork this Monday for a planned initial public offering that could raise up to $100 billion.

Chinese policymakers face constraints as the top officials of the Chinese Communist Party gather this week for the fifth plenum. This meeting will prepare for next year's 21st Party Congress, where Xi Jinping is expected to secure a fourth term. Wang said stimulus measures are considered high risk before the Congress, as officials fear accountability if policies fail to deliver results.