Chinese stocks lose $2.4 trillion amid AI concerns

Chinese stock markets have suffered losses totaling $2.4 trillion since last May, amid growing concerns about the future of artificial intelligence and the ability of local companies to generate profits, while competition between Beijing and Washington for dominance in the sector heats up, according to the British newspaper "The Guardian."

The "STAR 50" index, which tracks the performance of technology and innovation companies listed on the Shanghai Stock Exchange, has fallen by 40% since last June, while other major Chinese stock indices declined by approximately 20% during the same period, according to data cited by the newspaper from "Bloomberg."

These losses are particularly significant given that AI stocks account for more than 40% of the market capitalization of stocks in China and Hong Kong, according to estimates by "Goldman Sachs"; this makes any decline in valuations of sector companies a factor affecting the overall performance of local markets.

The wave of declines reflects, according to the newspaper, the limits of the Chinese economy's ability to support a tech boom driven by government investments, at a time when consumers continue to refrain from spending in several sectors, including technology; making it difficult for companies to convert growth and investments into sustainable profits.

Weak profits and declining domestic demand

The Chinese government has pumped large investments into the AI sector, including a state-backed investment fund worth 60 billion yuan, which began injecting funds into local technology development companies during October.

But these investments have not dispelled concerns related to weak domestic demand and limited profit margins, along with the repercussions of rising US interest rates and increasing threats of imposing Western restrictions on Chinese technology.

Dan Wang, director of Eurasia Group in China, said that profit margins this year came in below expectations, coinciding with the United States raising interest rates and weak Chinese domestic demand.

She added that technology companies face general anxiety regarding the sustainability of the state-supported model in the context of weak consumption, noting that the convergence of these factors contributed to the wave of stock selling.

US restrictions increase pressure on Chinese companies, as Washington banned the use of human-like robots manufactured in China, citing national security concerns, and is considering imposing restrictions on Chinese components used in data centers.

These measures pose a challenge to an export-dependent Chinese economy, especially as local companies face difficulties in achieving sufficient sales within the Chinese market to compensate for restrictions on their access to foreign markets.

Robots fail to deliver expected profits

In the framework of competition with the United States, Beijing has intensified its bet on robotics and embodied AI, which integrates intelligent systems into physical bodies capable of interacting with the environment and performing tasks, as a means to expand the use of technology across various sectors of society.

Chinese authorities also view robots as a potential tool to address demographic challenges, including population aging and shrinking workforce.

However, demand for these technologies comes primarily from government entities and research institutions, rather than individual consumers, due to high costs and the fact that they have not yet reached a level that makes them practical for home use.

Despite the prevalence of humanoid robots and robotic dogs in the entertainment sector, their use in homes remains limited; raising questions about their ability to transform into a broad consumer market and a sustainable source of profits.

In this context, shares of "Unitree," one of China's leading robot manufacturers, have halved since trading began last August.

Wang considered that embodied AI does not yet seem capable of generating profits in the mass market, given weak demand and limited profit margins.

Nevertheless, there remain positive expectations for other technological sectors in China, including AI research and satellites, especially as the latter's connection to military needs enhances the likelihood of continued long-term government support.

Investment restrictions and delayed economic stimulus

In an attempt to support local markets, the Chinese government sought to encourage investors to direct their funds domestically, imposing restrictions on foreign investments over the past months, with additional regulatory rules coming into effect starting December 1.

But these measures have not yet led to a tangible increase in investments within Chinese markets.

In contrast, attention turns to the United States, where "Anthropic," developer of the chatbot "Claude," filed paperwork ahead of a highly anticipated initial public offering, which could become one of the largest in stock market history, with projections that the offering proceeds could reach $100 billion.

No similar IPOs in terms of size are currently on the horizon in China; reinforcing fears about the ability of its companies to attract capital amidst current challenges.

Despite pressures demanding the approval of stimulus measures to support investment and economic activity, no new measures of this kind are expected to be announced during the current period, which sees increasing political sensitivity in the country.

Senior officials of the Communist Party of China will meet this week during the Fifth Plenary Session, which paves the way for the next political phase before the Party's 21st National Congress next year, amid expectations that President Xi Jinping will seek a fourth term.

Wang believes that taking stimulus measures at this stage carries political and economic risks, as officials who approve them may bear the consequences if they fail to achieve the desired results.

While the Sino-US competition for AI leadership continues, market losses reveal a widening gap between Beijing's technological ambitions and the ability of local companies to generate commercial returns that justify massive investments in the sector.