China loses $2.4 trillion in stock selloff as AI spending stalls

China’s stock market lost $2.4 trillion in value since May, according to data from Bloomberg. The decline was driven by a sharp drop in technology shares as investors grew concerned about the profitability of artificial intelligence companies.

The STAR 50 Index, which tracks technology and innovation firms listed on the Shanghai Stock Exchange, fell 40% between June and late October. Broader indexes of major companies dropped by approximately 20% over the same period.

Goldman Sachs notes that AI stocks represent more than 40% of the total market value in China and Hong Kong. This high concentration means that declines in the tech sector ripple through the entire domestic market.

The government has attempted to support the industry by launching a state-backed AI investment fund worth 60 billion yuan. The fund began distributing capital to domestic developers this month. However, Chinese consumers remain hesitant to spend money on new technology products.

Dan Wang, the China director for the Eurasia Group, said profit margins are lower than expected. She cited rising interest rates in the United States and weak domestic demand as key factors. Wang described a general anxiety among tech firms regarding whether the state-supported model can succeed without strong consumer buying.

Trade tensions with the US also contributed to the sell-off. The United States banned Chinese humanoid robots, citing national security risks. Washington is also considering a ban on Chinese components used in data centers. These restrictions hurt Chinese companies that rely on exports and struggle to sell enough products at home to remain profitable.

Beijing views robotics as a solution to demographic challenges, such as an aging population and a shrinking workforce. However, demand for robots is currently driven by government agencies and research institutions rather than households. Products like humanoid robots and robotic dogs remain too expensive and impractical for everyday home use.

Shares in Unitree, a leading Chinese robot maker, have cut their value in half since the company began trading in August. Wang stated that embodied intelligence does not yet show a clear path to mass market profits.

The government recently restricted overseas investment to encourage domestic spending, with new regulations taking effect on December 1. These measures have not yet reversed the trend of capital flowing out of the market.

Policymakers are cautious about introducing new stimulus measures. Top officials of the Chinese Communist Party are gathering this week for the fifth plenum. This meeting will set the stage for the 21st Party Congress, where Xi Jinping is expected to secure a fourth term. Wang noted that risky policy moves are avoided during this politically sensitive period to prevent accountability issues if the measures fail to boost the economy.