China Tech Stocks Lose $2.4 Trillion as AI Selloff Deepens

Investors in Chinese technology stocks have lost $2.4 trillion since May, according to Bloomberg data. The decline reflects growing concern over the sustainability of the artificial intelligence sector in China. The drop has hit markets in both mainland China and Hong Kong.

The STAR 50 Index, which tracks innovative companies on the Shanghai exchange, has plunged 40% since June. Other major indices have fallen by approximately 20% over the same period. Goldman Sachs notes that AI stocks make up more than 40% of total market value in the region. This concentration means that declines in tech valuations affect the broader economy.

Beijing has invested heavily in the sector, including a 60 billion yuan state-backed fund that began deploying capital to domestic developers this month. Despite this support, consumer spending remains weak. Many technology firms struggle to generate profits because domestic buyers are not purchasing enough products to offset costs.

Dan Wang, China director for Eurasia Group, said profit margins were lower than expected this year. She cited rising interest rates in the United States and weak domestic demand as primary factors. Wang described a general anxiety among tech companies about whether state-backed models can succeed without strong consumer pull.

Trade tensions with the United States have added pressure. Washington has banned Chinese humanoid robots for national security reasons. The US is also considering restricting Chinese components in data centers. These measures hurt Chinese exporters that rely on overseas sales to balance weak home demand.

Beijing views robotics, or embodied AI, as a key solution to demographic challenges such as an aging population. However, current demand for robots comes mostly from government agencies and research institutions. Products remain too expensive and impractical for most households. Shares in Unitree, a leading Chinese robot manufacturer, have halved since the company began trading in August.

Wang noted that embodied intelligence has not yet translated into mass-market profits. Thin margins, high US rates, and low domestic demand continue to weigh on the sector. While optimism remains in AI research and satellite technology, the latter benefits from long-term military support.

China has restricted overseas investment in recent months, with new regulations taking effect on December 1. These rules aim to keep capital within the country. However, the measures have not yet led to a significant increase in domestic market investment.

Policymakers face pressure to introduce stimulus measures to boost confidence. None are expected to be announced during the current politically sensitive period. Top Communist Party officials are gathering this week for the fifth plenum. This meeting will prepare for the 21st Party Congress next year, where Xi Jinping is expected to secure a fourth term.

Wang called any new stimulus measures high risk. She questioned who would be held accountable if the policies failed to stimulate growth. The global AI boom is still expected to last at least another year, but Chinese markets currently show no signs of stabilizing.