Analysis: In China, the AI bubble has already burst

MSN

China’s AI and semiconductor stocks have crashed, with the mainland STAR50 index falling 40% in less than four months and erasing about $480 billion in market value. The selloff has stalled Beijing’s effort to build a durable “slow bull” market and dampened its push to channel household savings into equities funding the AI boom.

AI stocks account for 42% of China’s market capitalisation and 57% of turnover across mainland A-shares and Hong Kong H-shares, according to Goldman Sachs. Unitree has halved since listing in August, while MetaX Integrated Circuits and Moore Threads have lost half their value since July. Traders cite high valuations, tax bills and possible restrictions on Chinese equipment in US data centres. The STAR50 still trades near 100 times trailing earnings, against 30 for the Nasdaq 100. Beijing faces a confidence problem. The correction may slow technology fundraising.

Comment

The selloff matters because China’s AI ambitions depend on more than state-directed investment. The STAR50’s 40% fall shows that retail investors, not only industrial planners, must remain willing to finance chipmakers, robotics firms and AI suppliers. When Unitree can attract 8,000 times oversubscription at listing and then halve in value, the credibility of that funding channel weakens.

The mechanism is concentration. With AI stocks representing 42% of market capitalisation and 57% of turnover, according to Goldman Sachs, a reversal in one theme transmits quickly across the wider market. Investors who entered because they believed Beijing backed the sector now face losses in Unitree, CXMT, MetaX Integrated Circuits and Moore Threads, which may make future listings harder to price.

The China Securities Regulatory Commission’s meetings with market participants, including CSRC Chairman Wu Qing, indicate that officials recognise the structural issue. A market dominated by speculative technology weighting can drain capital from other sectors, even while the state seeks stable long-term returns. The correction therefore tests whether China can finance innovation without recreating a boom-bust cycle.

Strategic Question for Discussion

If retail investors continue to bear the losses from AI-led corrections, which will matter more for China’s technology financing: state-backed funds or restored private confidence in the STAR50?

The pattern suggests that state-backed funds can stabilise prices, but they cannot indefinitely replace private capital seeking credible returns. The Unitree listing and subsequent halving show how quickly retail enthusiasm can reverse when valuations detach from earnings. My assessment is that restored confidence in the STAR50 will determine whether China’s AI firms can raise capital at scale beyond the current correction.

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