Chinese Markets Lose $2.4tn as AI Stocks Crash 40% Amid US Rivalry and Weak Demand

China AI Stocks Crash 40% as $2.4tn Evaporates from Chinese Markets

Chinese markets have suffered a devastating blow as AI stocks collapsed, wiping $2.4tn from market value since May and sending the STAR 50 Index plunging 40% in less than four months1

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. The meltdown has vaporized approximately $480bn in market value from AI and semiconductor leaders alone, marking a stark reversal from a rally that ran for two years2

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. AI stocks account for over 40% of the stock market value in China and Hong Kong, meaning the crash has sent shockwaves across the entire domestic market1

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. China's broad blue-chip index has dropped about 20% from highs reached in June, while other major company indexes fell by similar margins over the same period1

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AI Supremacy with US and US Technology Bans Drive Investor Anxiety

The selloff reflects mounting concerns about China's ability to compete in the AI race against the United States while facing escalating US export curbs. Washington has banned humanoid robots from China citing national security risks and is considering prohibiting Chinese components in data centers1

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. Shares in optical parts makers Zhongji Innolight and Eoptolink Technology have plummeted roughly 60% from highs in June and July, partly due to Washington's moves toward banning these former market darlings from supplying US data centers2

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. Dan Wang, China director for the Eurasia Group, noted that "general anxiety" pervades technology companies questioning whether the state-backed model can succeed amid weak consumer demand and geopolitical tensions1

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. China is heavily reliant on exports, making US restrictions particularly damaging to domestic companies that struggle to sell enough products at home1

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Weak Consumer Demand and Thin Profits Undermine AI Investment

Despite Beijing's 60bn yuan state-backed AI investment fund that began pumping money into domestic developers this month, Chinese consumers have proved stubbornly reluctant to spend across many economic sectors including technology1

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. Beijing-based fund manager Dong Baozhen described how "the stock market later evolved into a speculative crazy bull, and now we see the bubble bursting"2

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. The lack of profits is a critical factor driving the selloff, with Wang noting that "this year, the profit margin is not as good as expected"1

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. Shares in Unitree, China's leading robot-maker, have halved since they started trading in August despite being 8,000 times oversubscribed by retail buyers at listing1

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. Chipmaker CXMT has lost more than a quarter of its market value in the past month2

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AI and Robotics Sectors Face Reality Check on Embodied AI

Beijing has doubled down on embodied AI and robotics as the key to rolling out technology across society and addressing demographic challenges like an ageing population and shrinking workforce1

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. However, demand for robotics is being driven primarily by government agencies and research institutions rather than everyday consumers, for whom the products remain too expensive and impractical for home use1

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. Wang observed that "it doesn't look like embodied intelligence could turn into profits in the mass market"1

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. Chipmakers MetaX Integrated Circuits and Moore Threads Technology, which leapt 700% and 400% respectively on their market debuts last year, have also halved in value since July2

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China's AI-Driven Stock Market Bubble Bursts Ahead of Global Markets

The STAR 50 Index still trades at around 100 times trailing earnings, down from a high of nearly 250 but dramatically higher than the Nasdaq 100's multiple of 302

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. Investors worry the selloff could intensify before recovering. Hong Hao, managing partner and chief investment officer at Lotus Asset Management in Hong Kong, stated that "what's happening is now going to put a stop for many of the companies trying to get themselves listed"2

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. The crash contrasts sharply with US AI markets, where Anthropic filed paperwork for a planned IPO expected to bring in as much as $100bn, potentially one of the biggest stock market debuts of all time1

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. China has no such blockbuster IPOs on the horizon1

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. Small business owner Chen Wensheng from Hainan said he bought into the rally emboldened by official support for companies like Unitree, which counted state-backed funds as investors, but he and his friends are now nursing losses2

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. Despite pressure on policymakers to introduce stimulus measures, none are expected during the politically sensitive fifth plenum where officials are gathering to lay groundwork for next year's 21st Party Congress, which is expected to anoint Xi Jinping for a fourth term1

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