Stocks listed on mainland China have lost about $2.4 trillion in market value since May, as Reuters reported, with investors losing faith that Beijing's AI boom will ever turn a profit. The decline is larger than South Korea's entire economy produces in a year.

Artificial intelligence sits at the center of the selloff. AI companies now make up 42% of the market value of Chinese shares listed on the mainland and in Hong Kong, and 57% of trading, according to Goldman Sachs—so when AI stocks fall, the whole market falls with them. That concentration effectively turns China's indexes into a running referendum on whether the country's AI spending can generate returns.

The CSI 300, an index of China's 300 biggest listed companies, entered a bear market on October 22, meaning a drop of at least 20% from its peak. The sharpest damage hit Shanghai's STAR 50, an index of 50 large tech and chip companies, which fell 40% in less than four months, erasing about $480 billion. It still trades at roughly 100 times earnings—a ratio that shows how many years of current profit investors are paying for—down from nearly 250 at its peak. The Nasdaq 100, the U.S. tech benchmark, sits around 30, a gap that shows how much of China's AI story is still priced on expectations rather than current earnings.

The rout marks a reversal for a sector that upended global markets early last year. DeepSeek, a Chinese startup, released a cheap and powerful chatbot in January 2025, and Nvidia—the U.S. company whose chips power most AI—lost nearly $600 billion in market value in a single day, one of the steepest one-day losses on record for a U.S. company, as investors questioned what low-cost models would mean for demand for high-end chips. Moonshot AI's Kimi K3, also produced by a Chinese AI lab, sent chip stocks tumbling again in July.

Beijing then pushed its tech giants toward homegrown chips. According to the Financial Times, China's internet regulator reportedly told companies including ByteDance and Alibaba to stop buying Nvidia chips in September 2025. Z.ai, a Beijing lab, says it trained its GLM-5.2 model entirely on Huawei chips. The moves tie the industry's future to the capacity of China's domestic chip sector.

Analysts blame weak spending by Chinese consumers and doubts that AI companies can earn back what they have invested. Robot maker Unitree drew retail orders for 8,000 times the shares on offer when it listed in August, and its stock has since lost almost half its value since launch, even after a significant recovery this week. The gap between that frenzied debut and the slide since shows how quickly retail enthusiasm for the AI-robotics theme can reverse.

“The stock market later evolved into a speculative crazy bull,” said Dong Baozhen, a Beijing-based fund manager. “And now we see the bubble bursting.”

U.S. curbs are adding pressure. The U.S. Federal Communications Commission banned imports of new foreign-made humanoid robots in July on national security grounds, and Washington is also moving to ban Chinese-made optical parts from U.S. data centers. Together, the measures extend Washington's technology restrictions beyond semiconductors into robotics and networking hardware, restricting Chinese makers' access to the U.S. market. The makers, Zhongji Innolight and Eoptolink, are down about 60% from their peaks.

The selloff comes as broader conditions pressure risk assets worldwide. Brent crude is above $111 a barrel and 10-year Treasury yields are near 5%, while Bitcoin briefly fell under $80,000 ahead of the Federal Reserve's October 28 decision—the next scheduled event being watched for its implications for borrowing costs worldwide.