BEIJING — The artificial intelligence bubble is deflating in China's markets, as tighter listing standards dim hopes of recouping investments early through initial public offerings. Stocks that soared hundreds of times their offering prices right after listing have kept sliding, leaving retail investors to absorb the losses. The Shanghai STAR50 index, which tracks leading AI and semiconductor stocks on the STAR Market, has fallen 40% in less than four months, erasing about $480 billion in market value. Investment in physical AI also shrank more than 40% in a single month.
The STAR50 index closed at 1,252.28 on the 27th, down 4.81% from the previous session, Reuters reported. That marks a 30.74% decline over three months. The blue-chip CSI 300 index ended at 4,049.55, down 1.32% and roughly 20% below its June peak. China's recent declines have outpaced those in Western and other Asian markets. AI-related stocks account for 42% of China's market capitalization and 57% of trading value on mainland A-shares and Hong Kong H-shares, according to Goldman Sachs. "The market has degenerated into a speculative frenzy," said Chinese fund manager Dong Baozhen. "Now we are watching the bubble burst."
The Information reported on the 9th of last month, citing multiple sources, that the China Securities Regulatory Commission had conveyed plans through informal "window guidance" to raise approval standards for listings by humanoid robot companies. The thrust of the policy is that companies must demonstrate a capacity to generate sustained revenue, a path to narrowing losses and substantive technological innovation — going beyond merely attracting large investments or unveiling robot prototypes.
The robot investment fever has cooled as a result. Investment in China's physical AI sector fell 40.1% in a single month, from 19.4 billion yuan in August to 11.6 billion yuan last month, according to data compiled by Chinese industry research firm NE Times. The share of total funding taken by the top 10 projects also declined to 59.4% from 67.7%. The number of early-stage deals actually rose to 24 from 19 over the same period, indicating that investors are continuing to make early bets while hesitating to commit to large rounds.
Elevated share prices and tax burdens have compounded the risk that the United States could ban the use of Chinese-made data center equipment. Some analysts also attribute the sharp drop to excessive regulation that cracked down on leveraged and high-frequency trading. "Placing too much emphasis on 'technology content' — the share of market capitalization held by technology companies in major indexes — distorts the behavior of capital," said Leo Wang, a partner at Qianchuang Capital. "It has created severe bubbles in certain sectors and a funding drought in others."
Structural problems are also at work. China sets IPO prices relatively conservatively, and for technology companies, high expectations combined with limited initial float have sent share prices surging several-fold immediately after listing. The government's policy of encouraging listings by early-stage technology companies that have yet to reach commercialization has further fueled the overheating. "The structure shifts the corporate risk that should be borne at the pre-listing stage onto ordinary investors after the listing," said Shen Meng, a director at Chanson & Co.
Stocks that drew concentrated retail buying have indeed fallen the hardest. Unitree, a robotics company whose IPO subscription was oversubscribed more than 8,000 times, has seen its share price halve since trading began in August, while ChangXin Memory Technologies (CXMT) has dropped more than 25% over the past month. MetaX and Moore Threads, which jumped 700% and 400% respectively on their first day of trading last year, have also lost half their value since July. Optical components makers Zhongji Innolight and Eoptolink have fallen about 60% from their June and July highs.