Since June, the STAR 50 index of the Shanghai Stock Exchange, which tracks technology and innovation companies, has fallen 40%. Other major indexes have dropped about 20% over the same period. According to Bloomberg, the slump has wiped $2.4 trillion from the Chinese stock market since May. The fear is that Beijing's race against the United States for dominance in artificial intelligence may not be sustainable.
AI stocks weigh heavily on the market. According to Goldman Sachs, companies tied to artificial intelligence account for more than 40% of the stock market value in China and Hong Kong, while Reuters puts the share at 42%. Any dent in the value of these stocks sends shockwaves across the whole domestic market.
Beijing has invested heavily in the sector, including a state-backed AI investment fund of 60 billion yuan (about $9 billion) that began pumping money into domestic developers this month. The problem is demand. Chinese consumers are reluctant to spend, technology included, and many companies struggle to turn a profit. Restrictions imposed by the United States hurt domestic firms, which struggle to sell enough products at home.
Lack of profits is one of the causes of the sell-off. The other is the threat of new Western bans, especially American ones, on Chinese technology. Dan Wang, China director at the Eurasia Group, describes a "general anxiety" among tech companies: margins are thinner than expected, US interest rates are rising and domestic demand is weak. She doubts that a state-backed model can work without consumer demand.
Beijing is betting heavily on robotics, or embodied AI, as the key to spreading the technology across society and answering an ageing population and a shrinking workforce. For now, demand comes mostly from government agencies and research institutions rather than households: the products remain too expensive, and humanoid robots and robot dogs, popular in entertainment, are not yet useful at home. Shares in Unitree, China's leading robot maker, have halved since it started trading in August.
Wang still sees optimism in other areas, such as AI research and satellites, the latter supported for a long time by the state because of military links. Globally, the AI boom is expected to last at least another year.
The contrast with the United States is stark. Anthropic, which makes the Claude chatbot, has filed for a listing that could be among the biggest stock market debuts of all time, with proceeds of up to $100 billion. China has no comparable listing on the horizon. Although pressure on policymakers to introduce stimulus is growing, none is expected during a politically sensitive period ahead of next year's Party Congress, which is expected to confirm Xi Jinping for a fourth term. Until then, there is no appetite for risky measures: any stimulus would be "high risk", Wang says, because whoever designed it would be held accountable if it failed.
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