Chinese markets lose trillions as race for AI supremacy with US takes its toll

China’s AI-driven market boom is faltering as investors question whether government backing can produce sustainable profits. Since May, about $2.4tn has been erased from Chinese stock markets; the Shanghai STAR 50 technology index has fallen 40% since June, while other major indexes are down roughly 20%. The scale matters because AI-related stocks make up more than 40% of the combined market value of China and Hong Kong. Beijing has committed heavily to the sector, including a 60bn-yuan state-backed fund for domestic AI developers, but weak consumer spending leaves many companies struggling to turn investment into sales and profits.

The sell-off also reflects rising geopolitical risks and doubts about robotics, or “embodied AI,” which Beijing sees as a way to spread AI through society and address an ageing population and shrinking workforce. US restrictions on Chinese robots, and possible limits on Chinese data-centre components, threaten companies that depend on exports. Meanwhile, humanoid robots remain expensive and impractical for homes, demand comes mostly from government and research institutions, and Unitree’s shares have halved since its August listing. Analysts see more promise in AI research and satellites, which may receive long-term state support, but China lacks a major technology IPO comparable to Anthropic’s planned flotation. With a politically sensitive party meeting approaching, leaders are wary of risky stimulus, and curbs on overseas investment have not redirected funds into domestic markets.