TOKYO – Chinese stocks have experienced a dramatic decline, losing approximately $2.4 trillion in market value since May, an amount that exceeds South Korea’s total GDP of $2.25 trillion. This significant loss has raised concerns for Beijing, especially as consumption and the property sector continue to struggle. The decline occurs despite China’s advancements in artificial intelligence (AI) innovation.
The CSI 300 index has fallen 11% this year, contrasting sharply with significant increases in markets such as Taipei and Seoul, which have risen 59% and 31%, respectively. Analysts cite multiple factors contributing to the bear market in China, particularly a persistent slump in consumption and property values alongside burgeoning external pressures.
Ironically, while China’s AI sector is making strides, it has not helped bolster the stock market. Following the notable “DeepSeek shock” in January 2025, China’s AI research has garnered international attention, with recent studies indicating that the country’s advancements in AI are narrowing the gap with the United States. The recent launch of Moonshot AI’s Kimi K3 is viewed as validation of this trend.
This week, DeepSeek raised around $15 billion, signaling one of the most anticipated initial public offerings (IPOs) in recent years. Nonetheless, other AI companies, such as MiniMax and Z.AI (Zhipu), have seen their shares struggle under market pressure, reflecting a wobbly AI trade landscape.
Several obstacles are hindering Shanghai’s ability to capitalize on the global AI boom. Weak consumer confidence resulting from years of falling property values and high youth unemployment continue to dampen optimism among households and businesses. Additionally, the CSI 300 index lacks sufficient exposure to AI hardware, unlike its counterparts in Taiwan and South Korea, which benefit significantly from companies like TSMC and Samsung.
Geopolitical and regulatory uncertainties also play a role, as Chinese tech firms face challenges stemming from government crackdowns and global export controls, discouraging foreign investments. In response to the recent market turmoil, the Chinese government has activated a “national team” of state-backed funds and regulators to stabilize the market, a strategy employed during past market crises, such as the significant downturn in 2015.
However, analysts caution that without a global equity rebound, greater support from these state-backed entities may be necessary. Experts stress that while governmental intervention can provide temporary relief, it cannot substitute for systemic reforms needed to restore confidence in the economy.
The ongoing crises in the property sector, soaring youth unemployment, and strained local government finances have compounded the challenges to household demand in China. Current municipal debts incurred by local government financing vehicles (LGFVs) hinder the ability to stimulate economic growth through broader fiscal measures.
Although recent governmental measures have nudged GDP growth upward to 4.5% year-on-year in the third quarter, concerns persist about the economy’s long-term trajectory, with the IMF projecting a slowdown to 4% in 2027. Experts emphasize the necessity for substantial fiscal stimulus to address the enduring property crisis and to promote consumption among households, which is crucial as approximately 70% of Chinese household wealth is tied to real estate.
Many analysts argue that for China to emerge stronger from its current economic woes, it must take decisive action to foster a more transparent and reliable investment environment. As the nation continues to wrestle with economic challenges, including fragile consumer confidence and mounting debts, the requirement for bold reforms becomes increasingly clear.
