By Islam El-Sakka
Chinese stock markets have shed trillions of dollars in recent months as investors grow increasingly anxious about the future of artificial intelligence, with Beijing racing against the United States for dominance in the sector.
Sharp declines across major indexes
The STAR 50 Index, which tracks technology and innovation companies on the Shanghai stock exchange, has plunged 40% since June. Other indexes of major companies dropped by about 20% over the same period. The sell-off has wiped out $2.4 trillion from the Chinese stock market since May, according to Bloomberg. AI stocks account for over 40% of the stock market value in China and Hong Kong, according to Goldman Sachs, meaning any dent in valuation sends shockwaves across the domestic market.
Government investment meets weak consumer demand
Beijing has invested heavily in AI, including a 60 billion yuan state-backed AI investment fund that began deploying capital to domestic developers this month. However, Chinese consumers remain reluctant to spend across many sectors, including technology, leaving many tech companies struggling to turn a profit. Dan Wang, China director for the Eurasia Group, said profit margins have fallen short of expectations while U.S. interest rate hikes and weak domestic demand fuel a "general anxiety" about whether the state-backed model can succeed.
U.S. restrictions compound pressure
The United States has banned humanoid robots from China citing national security risks and is considering restrictions on Chinese components in data centres. China relies heavily on exports, and U.S. curbs hurt domestic companies that cannot sell enough products at home. As the AI race intensifies, Beijing has doubled down on robotics — known as embodied AI — as the key to deploying the technology across society and addressing demographic challenges such as an ageing population and shrinking workforce.
Robotics demand driven by state, not consumers
Demand for robotics comes mainly from government agencies and research institutions rather than everyday consumers, for whom products remain too expensive and impractical for home use. Humanoid robots and robotic dogs have found popularity in entertainment but lack household utility. Shares in Unitree, China's leading robot-maker, have halved since their August debut. Wang said embodied intelligence does not appear poised to generate mass-market profits.
Political calendar limits stimulus options
Chinese authorities have restricted overseas investment to keep capital domestically, but the measures have not spurred greater investment in local markets. Optimism persists in sectors such as AI research and satellites, the latter benefiting from perceived long-term state support due to military links. Globally, the AI boom is expected to continue for at least another year, with U.S. firm Anthropic preparing a potential $100 billion IPO. China has no comparable blockbuster listings on the horizon.
Policymakers face pressure to introduce stimulus, but none are expected during a politically sensitive period. This week, top Chinese Communist Party officials are gathering for the fifth plenum, which will set the stage for next year's 21st Party Congress where President Xi Jinping is widely expected to secure a fourth term. Any stimulus would be "high risk," Wang said, because failure would hold the policy's architect accountable.
