China Tech Shares Shed $2.4 Trillion as AI Demand Fails to Materialize

Chinese stock markets have lost $2.4 trillion in value since May, according to Bloomberg, as investors pull out of technology and artificial intelligence sectors. The decline is the steepest drop in the market since the pandemic era, with the STAR 50 Index falling 40% since June. Other major indexes tracking large companies have dropped by approximately 20% over the same period.

The sell-off is driven by a disconnect between government investment and consumer spending. Goldman Sachs reports that AI stocks make up more than 40% of the total stock market value in China and Hong Kong. This concentration means that any decline in AI valuations impacts the entire domestic market. Beijing launched a 60 billion yuan state-backed AI investment fund in October, injecting capital into domestic developers. However, consumers remain reluctant to spend, preventing many tech firms from generating consistent profits.

External pressure from the United States has compounded the domestic weakness. Washington has banned Chinese humanoid robots on national security grounds and is considering restrictions on Chinese components in data centers. These moves threaten China's export-dependent tech industry. Dan Wang, China director at Eurasia Group, noted that profit margins are lower than expected. She cited rising US interest rates and weak domestic demand as key factors creating anxiety among technology companies about the sustainability of the state-backed model.

The robotics sector, which Beijing views as a solution to demographic challenges, has seen sharp declines in share prices. Shares in Unitree, a leading robot maker, have halved since they began trading in August. While the government pushes for embodied AI to address an aging population, current demand comes mostly from agencies and research institutions. Everyday consumers find the products too expensive and impractical for home use, leaving companies with thin margins and limited revenue streams.

Policy responses are delayed by political timing. Chinese officials are gathering this week for the fifth plenum of the Communist Party, which will set the stage for the 21st Party Congress next year. The congress is expected to confirm Xi Jinping for a fourth term. Wang described potential stimulus measures as high risk during this sensitive period. Officials are hesitant to implement bold economic policies that might not work, as accountability for failed measures would fall on the policymakers involved.

China lacks comparable high-profile IPOs to the US market. Anthropic, the maker of the Claude chatbot, filed paperwork on Monday for a potential IPO that could raise up to $100 billion. This event underscores the gap between the US and Chinese tech sectors in terms of capital market activity. While Wang remains optimistic about AI research and satellite sectors due to their military links, the broader market faces uncertainty. The global AI boom is expected to continue for at least another year, but Chinese domestic markets are struggling to keep pace with investment outflows.