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Beijing is rushing to shore up its ailing stock markets as China’s AI trade reverses amid slowing economic momentum and an absence of large-scale fiscal stimulus.
The CSI 300 index of stocks listed in Shanghai and Shenzhen has entered a technically bear market, down 10 percent since the start of the year and more than 20 percent from its June peak.
The contagion has spread to Hong Kong, where mainland Chinese investors – a crucial source of demand for the city’s stocks – have sold HK$20 billion ($2.5 billion) worth of shares so far this month, putting October on track for the biggest month of outflows since July 2021, according to FT calculations.
Hong Kong’s Hang Seng index has fallen more than 12 percent this year, while the technology subindex is down more than 30 percent.
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There are signs that Beijing has deployed its so-called national team of state-aligned funds and brokers to buy Chinese stocks and dissuade domestic investors, who account for the majority of business activity in mainland China, from fleeing the market.
National team’s purchases of domestic exchange-traded funds last week were likely the most aggressive since Donald Trump’s “liberation day” tariff announcement in April 2025, according to Macquarie analysts who used net inflows into ETFs held by state investor Central Huijin as a proxy.
“National team purchases aim to set a floor under the market,” they wrote in a note on Tuesday. “A sustainable market recovery still depends on a recovery in domestic demand, which could occur once Beijing can no longer rely on exports to drive growth.”
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AI hardware stocks were among the hardest hit. The CSI 300 industries subindex is down 23 percent year to date.
Its main constituent, the world’s largest battery maker CATL, has seen its Shenzhen share price fall 37 percent since the start of the year. Meanwhile, CXMT, China’s largest producer of DRam chips, is down 20% over the past month after a blockbuster IPO in July.
This technological rout comes despite China’s efforts to compete with the United States in the field of AI thanks to open source models from laboratories such as DeepSeek and Moonshot.
Policymakers in Beijing gave a major boost to domestic stock markets in September 2024 when they unveiled a package of policies that included financing share buybacks.
But hopes for major stimulus measures have faded over the course of this year, with recent data showing a decline in government spending in the first nine months.
“Fiscal policy has become restrictive rather than expansionary,” said Kinger Lau, chief China equity strategist at Goldman Sachs, describing it as one of the “major surprises” compared to expectations at the start of the year.
Analysts also pointed to increased government control over offshore wealth and trusts as a trigger for stock sales, particularly in Hong Kong. Some stock analysts have speculated that wealthy investors were seeking to raise cash to pay tax bills that could date back decades.
“On a fundamental level, we don’t see big changes apart from the tax on offshore trusts,” said Kieron Poon, investment director for Asian equities at Aberdeen Investments.
Lau added: “At a very high level, I think the tax shift is just a manifestation of fiscal policy tightening. »
Chinese economic data indicates deteriorating dynamics this year, particularly in terms of consumer demand. Retail sales declined in May for the first time since late 2022 and have remained consistently weak since then.
Investment in fixed assets fell 7.2 percent year-on-year in the nine months to the end of September, although exports soared.
Last month, Beijing unveiled new mortgage subsidies that were widely seen as small-scale compared to the country’s vast and struggling real estate sector, mired in a slowdown for five years.
The Chinese Communist Party’s top leaders are meeting this week for a fifth plenum focused on discipline. Some analysts are hoping for a policy change after the meeting.
Data visualization by Haohsiang Ko in Hong Kong
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