In China, the AI bubble has already burst

China’s AI and semiconductor shares have suffered a sharp reversal after a two-year rally, with the STAR50 index falling 40% in less than four months and wiping out about $480 billion in market value. The broader CSI300 is down roughly 20% from its June peak. Investors cite stretched valuations, doubts about AI demand, tax pressures and the risk that the United States or other countries will restrict Chinese equipment in data centres. AI stocks had come to represent 42% of market capitalisation and 57% of trading across mainland and Hong Kong-listed Chinese shares, spreading losses widely. Former retail favourites have plunged: robot-maker Unitree has lost half its value since listing, while several chipmakers and optical-component suppliers have also fallen sharply. The STAR50 still trades at about 100 times trailing earnings, compared with 30 times for the Nasdaq 100.

The collapse has damaged confidence in Beijing-backed technology investments, pushed some savers toward defensive assets and may slow fundraising and listings by tech firms. It also complicates the government’s effort to build a steadier “slow bull” market, despite measures to curb leverage and trading practices that amplify volatility. Critics argue that concentrating too much index weight and capital in technology distorted the market and drained investment from other sectors. Others view the decline as a correction compatible with long-term market reforms, and some global investors and analysts still see selective buying opportunities. Many domestic investors remain cautious, expecting intense price competition among Chinese manufacturers and waiting for valuations to fall further.