China Tech Stocks Lose $2.4 Trillion as AI Race With US Deepens

Chinese stock markets have lost $2.4 trillion in value since May, a decline that reflects growing investor anxiety over the country’s ability to sustain its rapid advancement in artificial intelligence. The financial contraction has hit the technology sector hardest, marking a sharp reversal from the optimism that characterized the previous year.

The STAR 50 Index, which tracks innovation-focused companies listed in Shanghai, has plunged by 40% since June. Other indices for major corporations have dropped by approximately 20% over the same period. Because AI stocks represent more than 40% of the total market value in China and Hong Kong, according to Goldman Sachs, this sector’s slump has sent shockwaves through the entire domestic market.

Beijing has attempted to counteract the decline through state intervention, including a 60 billion yuan investment fund that began allocating capital to domestic developers this month. However, government spending has not yet translated into consumer confidence. Chinese households remain reluctant to spend, leaving many tech firms struggling to generate profits despite heavy state support.

Dan Wang, China director for the Eurasia Group, identified weak domestic demand as a primary driver of the sell-off. She noted that profit margins are lower than anticipated while the United States continues to raise interest rates. Wang described a pervasive anxiety among technology leaders regarding whether state-backed models can succeed when consumers are not buying enough products.

Trade restrictions from the West have compounded the local economic challenges. The United States has banned Chinese humanoid robots on national security grounds and is considering blocking Chinese components in data centers. These limits hurt Chinese exporters, which rely on foreign sales to offset weak domestic consumption. Shares in Unitree, a leading robot manufacturer, have fallen by half since the company began trading in August.

Robotics, or embodied AI, is central to Beijing’s strategy for addressing demographic shifts such as an aging population. Yet current demand for these machines comes largely from government agencies and research institutions rather than households, where products remain too expensive and impractical. Wang stated that it does not appear embodied intelligence will generate mass-market profits in the near term.

Policymakers face pressure to introduce stimulus measures to boost investment, but officials are hesitant to act before the fifth plenum of the Chinese Communist Party. Top leaders are gathering this week to prepare for the 21st Party Congress, where Xi Jinping is expected to secure a fourth term. Wang warned that any stimulus package would be high risk during this politically sensitive window, as the architect of a failed policy could be held accountable.

While optimism persists in niche sectors like satellites and AI research, the broader market lacks the blockbuster listings seen elsewhere. In the United States, Anthropic filed paperwork for an initial public offering that could raise up to $100 billion. China has no comparable debuts on the horizon, leaving investors to wait for economic signals that may not arrive until after the Party Congress concludes.