Chinese Tech Shares Drop as AI Spending Meets Weak Demand

Investors in China are retreating from the technology sector as a clash between massive state spending and tepid consumer demand shakes confidence in the country's AI ambitions. The market has lost trillions of dollars in value over the last few months, reflecting a growing nervousness about how Beijing will maintain its competitive edge against the United States.

The STAR 50 Index, which tracks innovation firms in Shanghai, has fallen 40% since June. Broader indexes covering major Chinese companies have dropped by roughly 20% during the same period. Bloomberg data indicates that these declines have wiped out $2.4 trillion from Chinese equities since May. Because AI stocks represent more than 40% of the total market value in China and Hong Kong according to Goldman Sachs, the slump is dragging down the wider domestic market.

Beijing has poured substantial capital into the field to prop up the industry. A state-backed AI investment fund with 60 billion yuan in resources began channelling money to domestic developers this month. However, the stimulus has not yet translated into broad-based growth. Chinese consumers remain hesitant to spend, and many tech firms are struggling to turn a profit. Dan Wang, the China director for the Eurasia Group, described a general anxiety among technology firms about whether the state-backed model can succeed when domestic demand is so weak.

External pressures are compounding the internal challenges. Washington has banned humanoid robots from China citing national security concerns and is reportedly weighing a ban on Chinese components in data centres. These curbs hurt companies that rely on exports, especially those that cannot sell enough products at home. Wang noted that profit margins are lower than expected while the US raises interest rates and China's domestic demand stays soft.

Robotics, or embodied AI, has been a specific focus for Beijing as a way to address an ageing population and shrinking workforce. Yet demand is currently driven mostly by government agencies and research institutions. For ordinary households, the products remain too expensive and impractical. Shares in Unitree, China's leading robot-maker, have halved since they began trading in August. Wang said it does not look like embodied intelligence will turn into profits in the mass market soon.

The government is trying to keep domestic money at home. It has restricted overseas investment in recent months, with new rules taking effect on 1 December. These measures have not yet drawn more money into Chinese markets. Wang noted that optimism persists in areas like AI research and satellites, where military links suggest lasting state backing. Globally, the AI boom is expected to continue for at least another year.

The contrast with the United States is sharp. On Monday, Anthropic, the company behind the Claude chatbot, filed paperwork for a potential IPO that could raise as much as $100 billion. It would be the largest stock market debut in history. China has no comparable listings on the horizon.

Further stimulus is unlikely in the immediate future. Senior Communist party officials are meeting this week for the fifth plenum to prepare for next year's 21st Party Congress, where Xi Jinping is expected to secure a fourth term. Wang said there is little appetite for risky measures before the event. She described any stimulus as high risk because the policymaker who proposed it would be held accountable if it failed.