China's stock market is in steep decline, and investors are increasingly asking how much worse things could get. Chinese equities have fallen week after week as traders lose patience with the country's struggling economy, richly valued artificial intelligence companies, and Beijing's attempts to keep the market moving.

The CSI 300 index, which tracks 300 major companies listed in Shanghai and Shenzhen, entered a bear market on Thursday after dropping 20% from its June peak — the decline conventionally used to mark bear-market territory. By Friday, the benchmark had shed another 3%, deepening an already miserable stretch for shareholders.

The index has now recorded 10 consecutive weeks of decline, with the latest weekly drop at 2.6%, according to figures released during the week by LSEG. Nor is the problem confined to the United States — it has spread across Asia, where the index measuring large Chinese companies is down as much as 2.%.

Another structural issue compounds the volatility: retail investors dominate trading in China. HSBC estimates that they account for close to 90% of turnover, compared with 20% to 25% on the New York Stock Exchange — a gap that helps explain why shifts in sentiment can translate into sharp price moves in Chinese markets.

China's AI excitement is fading while consumers keep their wallets closed

For much of this year, Chinese technology companies attracted heavy coverage, driven by the country's rapidly developing artificial intelligence industry and expectations that share prices were set to explode. But as often happens, popularity has not translated into profits.

Investors are now assessing the actual worth and profitability of these firms and how effectively they capitalize on the development of artificial intelligence. Many were valued on potential capabilities rather than financial results, and such inflated expectations risk disappointing shareholders and triggering a mass sell-off of shares.

The pressure is not unique to China — shares of artificial intelligence companies are being put under strain around the world, including across Asian markets. The particular challenge facing Chinese technology companies is that weak stock prices could leave them struggling to raise the capital needed to support business growth.

China's domestic consumption, meanwhile, remains a persistent issue. The economy actually performed better than expected in the third quarter, with GDP growth reaching 4.5%. That puts Beijing close to achieving its annual growth goal of 4.5% to 5%, since the previous quarter came in below that range. Still, investors want proof that households have started consuming more, that firms are seeing better profits, and that confidence has been restored.

Beijing's spending cuts are raising more questions about its rescue plans

Another major concern is that China's government has been cutting spending at precisely the moment investors were hoping for stronger support. September marked the seventh consecutive month of reduced public expenditure. Government figures showed broad spending falling 3.7% from a year earlier, while revenue declined 3.5%. The monthly fiscal deficit consequently narrowed by 3.8% — a narrowing that reflects the spending pullback rather than any rebound in revenue.

Across the first nine months of 2026, government expenditure exceeded revenue by 7.57 trillion yuan, or approximately $1.1 trillion. Those spending restrictions have done little to strengthen domestic demand, leaving booming exports to carry much of the economy's growth.

Investment conditions remain difficult as well. Fixed-asset investment continued contracting, while infrastructure spending recorded a slightly deeper decline.

Beijing has not completely abandoned stimulus, however. Officials recently introduced mortgage subsidies for eligible homebuyers and authorized local governments to issue an additional 550 billion yuan in bonds to support economic activity. Those measures followed earlier efforts to accelerate previously approved programs, including 800 billion yuan in financing through state-owned policy banks intended to encourage investment.

Additional spending could arrive as major national projects get underway, including the Six Networks initiative, which forms part of China's broader technology ambitions. Authorities have also used government-backed stock purchases to limit market losses — a familiar tool in previous bouts of Chinese market turbulence.

Still, there is a difference between temporarily stopping prices from falling and giving investors a genuine reason to buy again. Earlier expectations of a much larger stimulus package helped lift shares, but those hopes have weakened as Beijing favors smaller interventions.

For now, traders are watching to see whether these policies actually improve company earnings, revive household demand, and bring private investment back into the economy.

Source: Cryptopolitan