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| China's Trillion-Dollar Market Collapse: The Unintended Cost of the US AI Race |
China's Trillion-Dollar Market Collapse: The Unintended Cost of the US AI Race
China’s AI Dream Is Costing Trillions As Stock Market Loses $2.4 Trillion As Profitability Concerns Grow
China is trying hard to win the global AI supremacy battle against the US but is paying a heavy price in its stock markets.
Trillions of dollars have been wiped from Chinese markets in just a matter of months after investors began to question how sustainable Beijing’s huge push into AI really is.
According to Bloomberg data, $2.4 trillion has been wiped from China’s stock markets since May 2025. The hardest hit sector has been the tech space. The megastar 50 Index, which tracks China’s top 50 technology and innovation companies listed on the Shanghai stock exchange, has dropped 40% since June. Other major indexes in Shanghai and Hong Kong have fallen nearly 20% over the same time period.
AI now accounts for more than 40% of the total stock market value in China and Hong Kong (Goldman Sachs). Therefore, when AI collapses, the whole market plummets.
Experts say there are several key reasons why the sell-off is happening.
REASON 1 1. No Profits, Just Hype
The Chinese government announced a state-backed AI fund of 60 billion yuan ($8.4 billion) this month to provide funding to local AI companies. However despite the support from the government most Chinese AI and robotics companies are struggling to turn a profit. Chinese consumers are choosing to save rather than spend and are therefore not investing in expensive AI products.
REASON 2 2. US Imposes Bans Due To National Security Risks
The US has placed bans on Chinese humanoid robots due to risks to national security. They have also banned government bodies from using China’s DeepSeek AI technology. The US is also reported to be looking to ban Chinese parts from being used in their data centres. As China is heavily reliant on exports, this means their tech companies are suffering.
REASON 3 3. Weak Domestic Demand And Rising US Prices
"Profit margins haven’t been good as expected. The US is increasing prices... and China’s domestic demand is so weak," said Dan Wang, China director at Eurasia Group. She added there was "general anxiety" in the tech sector about whether the state-led approach will be sustainable without consumers spending.
Beijing has been doubling down on embodied AI and humanoid robots to help combat its demographic crisis. However demand is coming from government labs and research institutes.
Although humanoid robots and robot dogs have become popular in entertainment, they are still too expensive and impractical for the average household. Unitree, China’s leading robot manufacturer, has seen half of its share price drop since its IPO in August, showing investors are unsure about profitability in the mass market.
Unlike the US which Anthropic (makers of Claude AI) are set to carry out the largest IPO in history worth $100 billion, China does not have any big tech IPOs.
Beijing may want to introduce stimulus measures to boost domestic investment but analysts say they will not. Top Communist Party officials are meeting this week to discuss what is going to happen at the 5th Plenum. This will set the tone for the 2026 party congress, where Xi Jinping is set to secure his fourth term.
There is no real desire to risk high stakes in the economy ahead of this.
"If there is any stimulus, it will be a high risk. If it doesn’t go well then whoever thought of that policy will be held responsible," said Wang.
China have restricted foreign investment from December 1 to encourage domestic investors to invest locally. However this has failed to boost local markets.
While some areas such as AI research and defence related satellites are still attractive due to long term state support, the whole AI boom in China is facing its first major reality check.
The question is not who will win the AI battle between China and the US. But whether China has enough money to keep moving forward.
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