As economists in the rest of the world look at the billions being poured into the AI industry with their hands over their eyes, the fate of China’s AI industry may be a sign of things to come.
A report from Reuters suggests that the AI bubble in China “has already burst.” Or it might be more apt to say that it shriveled like a rapidly deflating balloon: over the past four months, Reuters notes, the country’s STAR50 index of AI and semiconductor companies collapsed by 40 percent, wiping out $480 billion in market value. That is not a typo.
“The stock market later evolved into a speculative crazy bull,” Beijing-based fund manager Dong Baozhen told Reuters. “And now we see the bubble bursting.”
Shares of Unitree, China’s buzzy robotics company, have halved since the company went public in a much-hyped IPO in August, the reporting noted. The chipmaker CXMT, meanwhile, has lost more than a quarter of its value over the past month.
The vicissitudes of the stock market haven’t completely dampened AI investors’ spirits, though. DeepSeek, one of China’s top AI companies, recently raised $15 billion in one of the largest funding rounds in the country’s history, Bloomberg reported. The outlet also noted that Huawei clinched a $2.3 billion loan from Chinese banks to spend on more AI chips.
The conditions in China, of course, are different than elsewhere in the world. China faces constant efforts from the US to ice it out of global competition, with tariffs and the US considering an outright ban on Chinese companies supplying equipment to data centers, such as Zhongji Innolight, whose optical transceivers are critical for facilitating the light-speed transfers of the epic amounts of data that AI requires. It’s worth noting that the role of the economic hostility by the US and other western countries in the Chinese market downturn could be being understated, with the downturn as much a consequence of China being blocked from selling its AI products overseas as much as it is of market arrogance.
Still, the scale of money being poured into AI and AI-related industries — with AI stocks taking up some 42 percent of China’s market capitalization, according to Goldman Sachs — isn’t too dissimilar to what’s happening in Western economies, where the obvious lack of a return of investment becomes harder to ignore. Anthropic’s recent disclosure in its IPO filing of a staggering $80 billion loss — and plans to spend another $1 trillion on data centers over the next decade — will only further fuel fears that even the industry’s top players are still far from being profitable.
According to Reuters, state-backed investors sold into market rallies, or periods of rapid gains, to keep those gains in check, as part of a push by the government to dampen volatility. However intentioned that tactic may have been, it couldn’t dress up the fact that the demand for AI products just isn’t there yet.
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