China’s stock sell-off exposes doubts over AI profits

China’s stock markets have lost $2.4tn since May, according to Bloomberg, as concerns about AI profitability and western technology restrictions undermine investor confidence. The STAR 50 Index, which tracks technology and innovation companies in Shanghai, has plunged 40% since June. AI stocks account for over 40% of market value in China and Hong Kong, according to Goldman Sachs, leaving broader markets exposed to the downturn.

Beijing continues to channel money into the sector, including through a 60bn yuan state-backed AI investment fund that began investing this month. But weak domestic demand is making it difficult for technology companies to generate profits. Government agencies and research institutions are driving robotics purchases, while high prices and limited practical uses constrain consumer adoption. Shares in leading Chinese robot-maker Unitree have halved since trading began in August.

US restrictions are adding pressure on export-dependent companies. Washington has banned Chinese humanoid robots over national security concerns and is thought to be considering restrictions on Chinese components in data centres. Meanwhile, tighter limits on overseas investment have not translated into stronger domestic markets. Policymakers are not expected to announce stimulus during a politically sensitive period ahead of the next Communist party congress, despite pressure to support investment.