Business & Finance

China’s Tech Stocks Plunge as AI Race With U.S. Fuels Market Anxiety

By Amy Hawkins

China’s stock markets have lost trillions of dollars in recent months amid growing unease over the future of artificial intelligence, as Beijing competes with the United States for dominance in the sector. The STAR 50 Index, which tracks technology and innovation companies on the Shanghai Stock Exchange, has fallen 40% since June, while other major company indexes have dropped about 20% over the same period. Bloomberg reports that the Chinese stock market has lost $2.4 trillion since May. AI stocks represent more than 40% of the market value in China and Hong Kong, according to Goldman Sachs, so a decline in their value reverberates across the domestic market.

The fall suggests that, despite the government’s efforts to boost China’s technology industries—particularly those that harness AI—the domestic economy cannot sustain a booming market. The Chinese government has invested heavily in AI, including a 60 billion‑yuan state‑backed AI investment fund that began funding domestic developers this month. However, Chinese consumers have remained reluctant to spend, especially in technology, causing many tech companies to struggle with profitability. The lack of profits is one of several reasons for the sell‑off. Another is the threat of Western countries, especially the U.S., 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 U.S. is raising rates. And China’s domestic demand is so weak.” She added that there is a “general anxiety” among technology companies about whether the state‑backed model will work amid weak consumer demand. The U.S. has banned humanoid robots from China, citing national security risks, and is reportedly considering a ban on Chinese components in data centres. China’s heavy reliance on exports means that restrictions in the U.S. hurt its domestic companies, which struggle to sell enough products at home.

As China races with the U.S. to lead in AI, Beijing has doubled down on robotics—also known as embodied AI—as a key to deploying the technology across society. Robotics is also seen as a solution to China’s demographic challenges, such as an ageing population and a shrinking workforce. However, demand for robotics is driven mainly by government agencies and research institutions, rather than everyday consumers, for whom the products remain too expensive and impractical for home use. Humanoid robotics and robotic dogs have found popularity in entertainment but are not yet useful in home settings. Shares in Unitree, China’s leading robot maker, have halved since they began trading in August. Wang said, “It doesn’t look like embodied intelligence could turn into profits in the mass market.”

Thin profit margins, rising U.S. rates, and weak domestic demand contribute to a “general anxiety” among technology companies, Wang added. China’s government wants local investors to invest domestically. In recent months, China has restricted overseas investment, with new regulations taking effect on 1 December, but these moves have not increased investment in Chinese markets.

Wang noted optimism in other technology sectors, such as AI research and satellites, the latter benefiting from long‑term state support due to their military links. Globally, the AI boom is expected to last at least another year. On Monday, U.S. AI company Anthropic, which develops the chatbot Claude, filed paperwork for a planned IPO that could be one of the biggest stock market debuts ever, potentially raising as much as $100 billion. 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, where Xi Jinping is expected to be re‑elected for a fourth term. Wang said, “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’. What if it doesn’t work out? Then whoever came up with that policy, that guy would be held accountable.”