Billions of dollars have been wiped off Chinese stock markets in recent months amid growing concern about the future of artificial intelligence, as Beijing battles the United States for dominance in the sector.
The STAR 50 index, which tracks technology and innovation companies listed on the Shanghai Stock Exchange, has plunged 40% since June. Other large company indexes fell about 20% during the same period.
The sharp fall has wiped $2.4 billion from China’s stock market since May, according to Bloomberg.
AI stocks account for more than 40% of stock market value in China and Hong Kong, according to Goldman Sachs, meaning any drop in value will send shockwaves through the entire domestic market.
The drop suggests that despite the government’s best efforts to boost China’s tech industries, particularly those harnessing the power of AI, the national economy lacks the capacity to support a booming market.
The Chinese government has invested heavily in AI, including a 60 billion yuan state-backed investment fund, which this month began pumping money into domestic developers. But Chinese consumers have proven stubbornly reluctant to spend their money in many sectors of the economy – including technology – meaning many tech companies are struggling to turn a profit.
Lack of profit is one of the many reasons for selling. Another threat is the threat of Western countries, particularly the United States, to expand bans on Chinese technology.
“This year, the profit margin is not as good as expected. And the United States is raising rates. And Chinese domestic demand is very weak,” said Dan Wang, China director of the Eurasia Group. She said there was “general anxiety” among tech companies over whether or not the state-backed model would work in the face of weak consumer demand.
The United States has banned humanoid robots in China, citing national security risks, and is reportedly considering banning Chinese components in data centers. China is heavily dependent on exports, and U.S. restrictions are hurting its domestic companies, which are struggling to sell enough products at home.
As China competes with the United States to get ahead in AI, Beijing has doubled down on robotics – also known as embodied AI – as a key to deploying the technology in society. Robotics is also seen as the answer to China’s demographic problems, such as an aging population and a shrinking workforce.
But demand for robotics is driven by government agencies and research institutes, rather than ordinary consumers, for whom the products are still too expensive and not yet practical for home use. Humanoid robotics and robotic dogs are popular in the entertainment industry, but are not yet useful in the home.
Shares of Unitree, China’s top robot maker, have halved since trading began in August.
“It doesn’t seem like embodied intelligence can translate into mass market profits,” Wang said. Low profit margins, rising U.S. interest rates and weak domestic demand are all contributing to “general anxiety” among tech companies, she said.
The Chinese government wants local investors to invest their money in the country. In recent months, China has restricted overseas investment, with more regulations coming into effect on December 1, but these measures have not led to more investment in Chinese markets.
Wang added that there was still optimism in other technology sectors, such as AI research and satellites, the latter given that their ties to the military indicate long-term state support for the sector. And globally, the AI boom is expected to last at least another year.
On Monday, US AI company Anthropic, which makes the Claude chatbot, filed documents ahead of a planned IPO that could be the biggest IPO of all time. The company is expected to be worth up to $100 billion.
China has no such blockbuster IPOs on the horizon. And despite pressure on policymakers to introduce stimulus measures to boost investment, none are expected to be announced during a politically sensitive period in China.
This week, top officials of the Chinese Communist Party are gathering for the Fifth Plenum, an important meeting that will lay the foundation for next year’s 21st Party Congress. Congress is expected to nominate Xi Jinping, China’s leader, for a fourth term. There is no appetite for risky or potentially destabilizing policy measures before then, although there is a chance they could stimulate the economy.
Any stimulus would be “high risk,” Wang said. “What if it doesn’t work? Then whoever proposed this policy, that guy will be held accountable.”
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