China's artificial intelligence and chip stocks crashed again on Tuesday, as Shanghai's STAR50 index of AI and semiconductor leaders fell 4.81 percent to close at 1,252.28 — extending a collapse that has now cut the index by 40 percent in under four months and wiped out about $480 billion in market value.
The rout is no longer confined to one corner of the market. The STAR50 is down about 30.74 percent in three months, and the blue-chip CSI 300 index fell 1.32 percent on Tuesday to 4,049.55, sitting roughly 20 percent below its June peak. China's declines have outpaced those in Western and other Asian markets, and the exposure is enormous: AI-related stocks account for about 42 percent of China's total market capitalisation and 57 percent of trading value across the mainland and Hong Kong markets, according to Goldman Sachs estimates — so when AI falls in China, almost every investor falls with it.
There has been no single trigger for the selling. Traders point instead to a pile-up of pressures giving way at once: valuations that had run far ahead of earnings — the STAR50 traded at nearly 250 times trailing earnings at its peak and is still around 100 times, against roughly 30 times for the Nasdaq 100 — growing doubts about demand for AI, tax bills landing on investors who rode the rally, and Western export restrictions closing in on Chinese technology, including Washington moving toward banning Chinese companies from supplying American data centres. Regulators in Beijing also cracked down on leveraged and high-frequency trading, and state-backed investors sold into rallies to cool the market down.
Fund managers who lived through the frenzy are now calling it what it was. Dong Baozhen, a Beijing-based fund manager, said the market had degenerated into a speculative frenzy — a "speculative crazy bull" — and that "now we see the bubble bursting." Another manager, Wang Zhuo of Shanghai, put it more bluntly: there is no exception, and all bubbles inevitably burst.
The names ordinary savers loved most have fallen hardest. Robot-maker Unitree, whose listing was oversubscribed some 8,000 times by retail buyers hungry for a piece of China's AI future, has halved in value since it started trading in August. Chipmaker CXMT has lost more than a quarter of its value in a single month. MetaX and Moore Threads, which leapt 700 percent and 400 percent respectively on their market debuts last year, have also halved since July, while optical parts makers Zhongji Innolight and Eoptolink are down about 60 percent from their peaks.
For ordinary Chinese households, this is the part that hurts. Beijing spent two years encouraging families to move their savings out of property and bank deposits and into shares, hoping household money would fund the country's AI boom and deliver the stable, slow-rising "slow bull" market officials promised. Millions answered the call. Chen Wensheng, a small business owner from Hainan, said he bought into the rally believing official support stood behind companies like Unitree, which counted state-backed funds among its investors; he and his friends are now nursing losses. The frustration is pushing savers toward defensive assets, and it is freezing the pipeline of new listings — Hong Hao, chief investment officer at Lotus Asset Management in Hong Kong, warns that what is happening "is now going to put a stop for many of the companies trying to get themselves listed," slowing the flow of money to the very tech firms Beijing wants to build up.
For American readers, the contrast is the story. While China's AI champions crater, United States AI shares have taken only a modest correction — the Nasdaq is down about 6 percent from the record high it reached three weeks ago. In the middle of the technology race between Washington and Beijing, the crash lands on the Chinese side: it weakens Beijing's plan to fund its AI ambitions with household savings at the very moment the United States is tightening export controls on Chinese technology. It does not mean China's AI industry is finished — some fund managers say value is starting to appear and Asia funds remain overweight on China — but it does mean investors are no longer willing to pay any price for a piece of it, and that the same warning applies everywhere valuations run far ahead of reality.
What happens next is unknown. Whether Beijing steps in to steady the market is an open question — China's market regulator did not answer questions sent to it last week, though its chairman met market participants earlier this month to hear suggestions on improving the capital markets. Whether an index still trading at around 100 times earnings has further to fall, and whether the selloff spreads into already nervous global markets, is also unknown. What is known is the arithmetic of Tuesday: another 4.81 percent gone in a day, 40 percent gone in under four months, and about $480 billion of paper wealth gone with it.
📣 Join ProfiloPolitics on Telegram — breaking news first
Follow @profilopoliticsnews for every update on this story.