The Chinese stock markets AI selloff has erased trillions of dollars in value in recent months, as investors grow anxious about the future of artificial intelligence while Beijing races the US for dominance in the sector.

Index losses and the $2.4tn wipeout

The damage is concentrated where the AI enthusiasm was strongest. The STAR 50 Index, which tracks technology and innovation companies on the Shanghai stock exchange, has plunged 40% since June. Broader measures of Chinese business have fared badly too:

• •Other indexes of major companies dropped by about 20% over the same time period
• •The selloff has wiped out $2.4tn from the Chinese stock market since May, according to Bloomberg
• •AI stocks account for over 40% of stock market value in China and Hong Kong, according to Goldman Sachs

With so much of the market's value tied to AI, a correction in those shares pulls down almost everything else. That concentration helps explain why trillions of dollars have disappeared in a matter of months.

State fund and weak demand

Beijing has not stood still. The Chinese government started a 60bn yuan state-backed AI investment fund, which began pumping money into domestic developers this month. But state money has not settled the market's nerves.

Dan Wang, China director for the Eurasia Group, pointed to a squeeze from several directions at once: "This year, the profit margin is not as good as expected. And the US is raising rates. And China's domestic demand is so weak".

Wang described a "general anxiety" among technology companies about whether or not the state-backed model would work in the face of weak consumer demand.

Robotics bets and US tech bans

One answer Beijing has settled on is robotics, also known as embodied AI. The government has doubled down on it as the key to rolling out the technology across society and to answering demographic problems such as an ageing population and a shrinking workforce.

The demand for those robots, however, is not coming from households. It is driven by government agencies and research institutions rather than everyday consumers, for whom the products are still too expensive and impractical for home use.

In Wang's view, embodied intelligence does not look capable of turning into profits in the mass market.

The market has already delivered its verdict on at least one player:

• •Shares in Unitree, China's leading robot-maker, have halved since they started trading in August
• •The US has banned humanoid robots from China, citing national security risks
• •The US is thought to be considering a ban on Chinese components in data centres

The combination of thin consumer demand at home and curbs abroad has left the robotics bet looking fragile even as the state pushes more money into it.

No stimulus in sight, but Anthropic's record IPO

The contrast with the US side of the us-china ai race is stark. On Monday, US AI company Anthropic, maker of the chatbot Claude, filed paperwork ahead of a planned IPO that could be the biggest stock market debut of all time, expected to bring in as much as $100bn.

China has no such blockbuster IPOs on the horizon, and none are expected to be announced during a politically sensitive period. The country has in recent months restricted overseas investment, with more regulations taking effect from 1 December, but these moves have not led to greater investment at home.

This week, top Chinese Communist party officials are gathering for the fifth plenum, an important meeting that will lay the groundwork for next year's 21st Party Congress, which is expected to anoint Xi Jinping for a fourth term. Against that backdrop, Wang said any stimulus measure would be "high risk", asking: "What if it doesn't work out? Then whoever came up with that policy, that guy would be held accountable".

Wang pointed to optimism in other technology sectors, such as AI research and satellites, the latter because their links to the military indicate long-term state support. Globally, meanwhile, the AI boom is expected to last for at least another year.