State AI Fund Fails to Halt $2.4 Trillion Plunge in Chinese Tech Stocks

Chinese stock markets have shed $2.4 trillion in value since May, erasing wealth as investors grow skeptical of the sector's future.

The decline is concentrated in the technology sector, with the STAR 50 Index on the Shanghai stock exchange dropping 40% since June. Broader indexes of major companies have fallen by approximately 20% over the same period. According to Goldman Sachs, artificial intelligence stocks represent more than 40% of the total market value in China and Hong Kong. This concentration means that any drop in AI valuations affects the entire domestic market.

Beijing has attempted to counter the slide with heavy state intervention. The government launched a 60 billion yuan state-backed AI investment fund this month to support domestic developers. Despite this capital injection, consumer spending remains sluggish. Many tech companies struggle to generate profits because households are reluctant to spend on new technologies. This lack of revenue creates pressure on company valuations.

External factors also contribute to the sell-off. The United States has banned Chinese humanoid robots on national security grounds and is considering restrictions on Chinese components in data centers. China relies heavily on exports, so these US restrictions hurt domestic firms that cannot sell enough products at home to remain profitable.

Dan Wang, China director at the Eurasia Group, attributed the market anxiety to a mix of thin profit margins, rising US interest rates, and weak domestic demand. She described a "general anxiety" among tech firms about whether state support can overcome low consumer appetite. Wang noted that embodied intelligence, or robotics, is unlikely to turn a profit in the mass market soon. While the government views robotics as a solution to an aging population, current demand comes from agencies and research institutions rather than households. Products like humanoid robots and robotic dogs remain too expensive and impractical for most homes.

The financial impact is visible in specific companies. Shares in Unitree, a leading Chinese robot maker, have halved since the company began trading in August. The government has also tried to keep capital within China by restricting overseas investment, with new regulations taking effect on December 1. However, these measures have not yet driven greater investment into the domestic stock market.

Policy changes are on hold during a sensitive political period. Top Chinese Communist Party officials are gathering this week for the fifth plenum, which will prepare for the 21st Party Congress next year. The congress is expected to confirm Xi Jinping for a fourth term. Wang said that introducing stimulus measures now would be "high risk" because leaders would be held accountable if the policies failed to boost the economy. No major stimulus is expected before the party meets.

Global trends remain distinct from the domestic slowdown. Wang noted optimism in AI research and satellite sectors, the latter due to strong military links. Meanwhile, US AI company Anthropic filed paperwork for an initial public offering that could raise up to $100 billion, a scale of debut not currently seen in China.