China's Tech Markets: $2.4 Trillion Evaporates Amid AI Anxiety

Chinese stock markets have lost 2.4 trillion dollars in value since May, according to Bloomberg, as investors grow wary of the sustainability of the artificial intelligence boom. This decline reflects a sharp drop in confidence regarding the sector's ability to generate profits despite heavy state support.

The STAR 50 Index, which tracks technology and innovation firms on the Shanghai stock exchange, has plunged 40 percent since June. Broader indices of major companies have also dropped by approximately 20 percent over the same period. Goldman Sachs reports that AI stocks now account for more than 40 percent of total market value in China and Hong Kong, meaning that valuation pressures in this sector ripple across the entire domestic economy.

Beijing has poured capital into the industry, including a 60 billion yuan state-backed AI investment fund that began distributing money to domestic developers this month. However, consumer spending remains sluggish, making it difficult for many tech companies to turn a profit. Dan Wang, China director at the Eurasia Group, described a general anxiety among technology firms about whether state-backed models can succeed in the face of weak domestic demand.

External pressures compound internal challenges. The United States has banned Chinese humanoid robots citing national security risks and is reportedly considering restrictions on Chinese components in data centers. Wang noted that thin profit margins, rising US interest rates, and weak domestic demand are driving the sell-off. She stated, "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."

Robotics, or embodied AI, is central to Beijing's strategy to address demographic issues such as an aging population and a shrinking workforce. Yet demand is currently driven by government agencies and research institutions rather than households, as products remain too expensive and impractical for home use. Shares in Unitree, a leading Chinese robot manufacturer, have halved since beginning trading in August. Wang observed that it does not look like embodied intelligence could turn into profits in the mass market.

Regulators have recently restricted overseas investment to keep capital domestic, with new rules taking effect December 1. These measures have not yet spurred increased investment in local markets. Wang expressed continued optimism for specific sectors like AI research and satellites, noting that the latter's military links suggest long-term state support. Globally, the AI boom is expected to continue for at least another year.

In the United States, Anthropic, the developer of the Claude chatbot, filed paperwork for an initial public offering on Monday. The company is expected to raise as much as 100 billion dollars, a potential record for a stock market debut. China has no comparable blockbuster IPOs currently in the pipeline.

Policymakers face limited options for intervention during a politically sensitive period. Top Communist Party officials are gathering this week for the fifth plenum, which will set the stage for next year's 21st Party Congress. The Congress is expected to anoint Xi Jinping for a fourth term. Wang warned that any stimulus measure would be high risk, as officials who propose policies that fail could be held accountable.