Trillions of dollars have been wiped from China’s stock markets as the country struggles to sustain its race for global AI supremacy against the United States.

Market indicators have plummeted sharply in recent months. The , which tracks innovation and technology companies on the Shanghai stock exchange, has crashed 40% since June, while broader indexes of major enterprises have dropped by roughly 20%.

According to data from Bloomberg, the steep downturn has erased $2.4tn from the Chinese stock market since May. Because artificial intelligence and technology stocks account for more than 40% of total market capitalisation across China and Hong Kong, the rout has sent shockwaves throughout the wider domestic economy.

The bursting of the bubble is driven by a convergence of severe economic pressures, sluggish domestic demand and escalating international trade barriers.

Despite massive government intervention, including a newly launched 60bn yuan state-backed AI investment fund, Chinese consumers remain stubbornly reluctant to spend, leaving domestic technology firms struggling to generate meaningful commercial profits.

Compounding these domestic hurdles is the intensifying technological decoupling from the West. The United States has aggressively expanded restrictions on Chinese tech imports, banning Chinese humanoid robots over national security concerns and reportedly weighing further curbs on components used in data centres.

Because Chinese tech manufacturers rely heavily on robust export pipelines, these foreign restrictions severely undermine companies that are already failing to secure profitable sales at home.

In an effort to outpace Washington and combat demographic challenges such as a shrinking workforce and an ageing population, Beijing has heavily prioritised “embodied AI” and advanced robotics.

However, demand for these systems is currently driven almost exclusively by state agencies and research bodies rather than everyday consumers. With consumer models remaining too expensive and impractical for residential use, shares in leading robotic firms such as Unitree have halved since August.

Political factors are also exacerbating the crisis. As top Chinese Communist Party officials gather in Beijing for the politically sensitive fifth plenum to lay the groundwork for the upcoming 21st Party Congress, where President Xi Jinping is expected to secure a fourth term, policymakers have shown little appetite for risky economic stimulus measures that could destabilise the leadership transition.

While global AI markets continue to surge, highlighted by US lab Anthropic filing for a multi-billion initial public offering, China’s state-backed tech model faces a severe crisis of confidence, leaving analysts questioning the long-term viability of the domestic sector.

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