Until recently, entrepreneur Chen Wensheng from China's Hainan Island believed investing in artificial intelligence was a sure bet. He was persuaded to buy shares in robot manufacturer Unitree primarily by the involvement of state-backed investment funds, which he saw as a clear vote of confidence from Beijing. Today, however, he and his peers are counting massive losses that have swept through an entire generation of Chinese retail investors.
The era of unchecked AI optimism in China is drawing to a close, and markets are facing a harsh downturn. Tech equities that were stock market darlings just months ago are now in freefall. A case in point is the aforementioned robot maker Unitree, which has lost half its value since its August debut, even after demand during the initial offering outstripped supply eight-thousand-fold.
The market capitalization of Chinese tech companies has shrunk by $480 billion—more than 10 trillion crowns—in less than four months.
A Bubble Bound to Burst
The scale of the ongoing crisis is best illustrated by the performance of China's STAR50 index, which is dominated by semiconductor and tech firms. Since its July peak, it has plunged by roughly 40 percent. By comparison, the US tech-heavy Nasdaq index slipped only about six percent from its record high over the same period. The Chinese market is thus grappling with a far deeper correction that strikes at the very foundations of the government's strategy.
Beijing originally envisioned that the AI boom would encourage citizens to channel their savings into equities, thereby helping fund domestic technological development. State pledges to support the economy worked for nearly two years as the market steadily climbed. However, analysts note that the situation eventually spun out of control, with enthusiasm for tech companies far exceeding their underlying financial results.
China's STAR50 index has shed 40 percent of its value since its July peak, while the US Nasdaq has eased by just six percent.
Extreme Gains Give Way to a Steep Plunge
Prior to the current cooldown, Chinese tech went through a period bordering on speculative mania. Investors snapped up shares regardless of fundamental metrics, triggering extreme swings when newly listed firms debuted on the exchange.
Examples of dramatic downturns following initial surges:
- MetaX Integrated Circuits – shares surged 700% following last year's listing, but have shed half their value since July.
- Moore Threads – the chipmaker logged an initial 400% jump, but its market value has since been halved.
- Zhongji Innolight – the optical components producer has tumbled roughly 60% from its summer highs.
- Eoptolink Technology – the tech firm has faced a similar share price drop of about 60%.
Geopolitics and Market-Wide Fallout
Actions taken by Washington have contributed substantially to the market unease. The United States is considering export bans on certain Chinese technologies to American data centers, which directly threatens Chinese manufacturers' export potential. This uncertainty has also spilled over into the benchmark CSI 300 index, down 20 percent from its June high.
AI-linked firms carry immense weight across Chinese markets. According to data from Goldman Sachs, these enterprises account for 42 percent of the total market value of tracked Chinese and Hong Kong equities. Consequently, any shock to the sector reverberates across the broader national economy and imperils Beijing's ability to fund its tech sector.
“The stock market eventually turned into a wild speculative frenzy. And now we are watching the bubble burst,”
The Future of Chinese Tech Offerings
The current slump could carry lasting consequences for companies still waiting to go public. If investors lose faith in the AI sector, raising capital through fresh initial public offerings will become exceptionally difficult. Analysts warn that this pipeline is already beginning to stall, creating a strategic setback for Beijing.
Still, some industry observers strike a more optimistic tone. Goldman Sachs, for example, added Innolight and chipmaker CXMT to its list of recommended picks, identifying them as buying opportunities. Most investors, however, remain cautious, warning that the bottom for Chinese tech remains out of sight.