China's STAR 50 tech index falls 40% since June

China’s STAR 50 Index, which tracks technology companies on the Shanghai stock exchange, has fallen 40% since June, The Guardian reported on Tuesday, with thin profits and US restrictions weighing on the country’s AI companies.

Because AI stocks make up more than 40% of stock market value in China and Hong Kong, according to Goldman Sachs, the slide reaches across the whole market. Bloomberg puts the losses on Chinese stock markets since May at $2.4 trillion, and other indexes of major companies have dropped about 20% since June.

Beijing has spent heavily to build the sector, including a 60 billion yuan state-backed AI investment fund that began putting money into domestic developers in October. Chinese consumers, however, have been reluctant to spend, and many technology companies struggle to turn a profit.

“This year, the profit margin is not as good as expected. And the US is raising rates. And China’s domestic demand is so weak,” said Dan Wang, China director at the Eurasia Group. She described a “general anxiety” among technology companies about whether the state-backed model can work.

Pressure from abroad adds to the strain. The US has banned humanoid robots from China, citing national security risks, and is thought to be considering a ban on Chinese components in data centers, The Guardian reported.

Robotics, which Beijing treats as the key to spreading AI across society, still depends on demand from government agencies and research institutions rather than consumers. Shares in Unitree, China’s leading robot maker, have halved since the company began trading in August. Wang said embodied intelligence, the term for AI built into physical machines, did not look likely to turn into profits in the mass market.

Wang said there was still optimism in AI research and satellites, the latter because their military links point to long-term state support. China has restricted overseas investment to keep local money at home, but the moves have not lifted domestic markets.

No stimulus is expected while senior Communist Party officials meet this week for the fifth plenum, which lays the groundwork for next year’s 21st Party Congress, expected to give Xi Jinping a fourth term. Any stimulus would be “high risk,” Wang said.

The STAR Market, Shanghai’s board for technology companies, opened in July 2019. In the US, Anthropic, the maker of the Claude chatbot, filed paperwork on Monday for a planned listing that could raise as much as $100 billion, according to its IPO prospectus coverage, while China has no listing of that size in view.

Further Chinese rules restricting overseas investment take effect on December 1.