Chinese mainland stocks have shed $2.4 trillion in market value since May. Investors are increasingly skeptical about the profitability of the local artificial intelligence sector, which currently accounts for 42% of the market value of Chinese shares listed in the mainland and Hong Kong, as well as 57% of total trading volume.
The CSI 300 index, tracking China's 300 largest listed companies, entered a bear market on October 22 after falling at least 20% from its peak. The Shanghai STAR 50 index, which includes 50 major technology and chip firms, declined by 40% in under four months, resulting in a loss of approximately $480 billion.
Despite the downturn, the STAR 50 index still trades at roughly 100 times earnings, compared to a ratio of 30 for the U.S. Nasdaq 100. Market volatility has been exacerbated by events such as the release of DeepSeek's chatbot in January 2025 and the Kimi K3 model from Moonshot AI in July, which triggered declines in chip stocks.
Regulatory pressures and trade restrictions are further impacting the sector. In September 2025, Chinese regulators reportedly instructed companies like ByteDance and Alibaba to cease purchasing Nvidia chips. Meanwhile, the U.S. government has banned imports of foreign-made humanoid robots and is moving to restrict Chinese-made optical components in data centers.
