China Stocks Lose $2.4tn as AI Race With US and Weak Demand Hit Tech Shares

The STAR 50 Index, which tracks technology and innovation companies on the Shanghai Stock Exchange, has plunged 40% since June. Other indexes of major Chinese companies dropped by about 20% over the same period. Bloomberg data cited by The Guardian put the market value wiped out since May at $2.4tn.

AI stocks account for more than 40% of stock market value in China and Hong Kong, according to Goldman Sachs, meaning a decline in the sector weighs heavily across the domestic market. The Chinese government has invested heavily in AI, including a 60bn yuan state-backed AI investment fund that began pumping money into domestic developers this month. But Chinese consumers have remained reluctant to spend across many parts of the economy, including technology, leaving many tech companies struggling to turn a profit.

Weak profits are one reason for the sell-off. Another is the threat of Western countries, especially the United States, extending bans on Chinese technology. Dan Wang, China director for the Eurasia Group, said: “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.” She said there was “general anxiety” among technology companies about whether the state-backed model would work in the face of weak consumer demand.

The US has banned humanoid robots from China, citing national security risks, and is thought to be considering a ban on Chinese components in data centres. China is heavily reliant on exports, and restrictions in the US hurt domestic companies that already struggle to sell enough products at home.

As China races with the US to pull ahead in AI, Beijing has doubled down on robotics, also known as embodied AI, as the key to rolling out the technology across society. Robotics is also seen as an answer to China’s demographic problems, including an ageing population and a shrinking workforce. But demand for robotics is being driven by government agencies and research institutions rather than everyday consumers, for whom the products remain too expensive and not yet practical for home use. Humanoid robotics and robotic dogs have been popular in the entertainment industry but are yet to be useful in home settings. Shares in Unitree, China’s leading robot-maker, have halved since they started trading in August.

“It doesn’t look like embodied intelligence could turn into profits in the mass market,” Wang said. Thin profit margins, rising rates in the US and weak domestic demand were all contributing to a “general anxiety” among technology companies, she said.

China’s government wants local investors to invest domestically. China has in recent months restricted overseas investment, with more regulations taking effect from 1 December, but these moves have not led to greater investment in the Chinese markets. Wang added that there was still optimism in other technology sectors, such as AI research and satellites, the latter because their links to the military indicate long-term state support. Globally, the AI boom is expected to last for at least another year.

On Monday, US AI company Anthropic, which makes the chatbot Claude, filed paperwork ahead of a planned IPO that could be one of the biggest stock market debuts of all time. The company is expected to bring in as much as $100bn. China has no such blockbuster IPOs on the horizon. Despite pressure on policymakers to introduce stimulus measures to boost investment, none are expected to be announced during a politically sensitive period in China.

This week, top officials in the Chinese Communist Party are gathering for the fifth plenum, an important meeting that will lay the groundwork for next year’s 21st Party Congress. The Congress is expected to anoint Xi Jinping, China’s leader, for a fourth term. There is no appetite for risky or potentially destabilising policy measures before then, even if there is a chance they could boost the economy. Any stimulus measure 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.”

Editor's Summary

China’s stock market has shed $2.4tn since May, with the STAR 50 down 40%, as doubts about AI profitability and US restrictions weigh on tech shares despite state investment. Beijing’s robotics push has not yet generated mass consumer demand, and no major stimulus is expected before the party congress. A planned Anthropic IPO in the US contrasts with China’s lack of blockbuster listings.