BEIJING (Realist English). The retreat of the global artificial intelligence trade boom has made Chinese tech stocks the main casualties. This situation has dealt a tangible blow to Beijing’s strategy of using capital markets for a technological leap.
The fall — the steepest in the world
According to Bloomberg, the Star50 index, modeled on the Nasdaq, has plunged nearly 40% in the current half-year, becoming the worst performer among major global tech indices. The market capitalization of leading chipmakers MetaX Integrated Circuits and Moore Threads has roughly halved over the same period. The ChiNext index, focused on hardware companies, fell 36%.
This is a sharp contrast to the start of the year. Between April and June, Star50 rose about 75%, outpacing even South Korea’s Kospi: investors ignored high valuations, betting on Beijing’s policy support and the global AI boom. At its June 30 peak, the index’s forward P/E exceeded 80.
Valuations became a burden
When sentiment reversed, high valuations turned from an advantage into a liability. Star50’s forward P/E is still above 40, while South Korea’s Kospi, after its recent slump, is below 5, and the Nasdaq 100 is at 21. Gam Investment Management fund manager Jian Shi Cortesi stated bluntly: “The current level is a technical correction, not a value opportunity. For many high-potential tech stocks, truly cheap prices will only appear after another 30–50% decline.”
Foreign capital outflow and financing problems
Bloomberg Intelligence analysts note that the AI hardware selloff spread from the Nasdaq to Korea, but hit Chinese A-shares hardest, as foreign investors had actively entered the sector in the second quarter. In the third quarter, net foreign capital outflow from mainland Chinese markets through Hong Kong trading links amounted to about 90 billion yuan ($13.5 billion) — the largest in a year, reversing more than half of the April–June inflow.
This is a direct threat to Chinese AI companies. Gavekal Capital portfolio manager Leonid Mironov said: “If pressure on tech stocks persists, it will be much harder for China to realize its AI ambitions. If weakness lasts more than six months, financing will become difficult, and that would mean the market does not recognize the technological progress already achieved.”
Chinese AI companies rely more on equity financing than debt, partly due to high global borrowing costs. Mironov points out that stocks are the “default source of financing” for Chinese AI companies.
IPO boom faces headwinds
Chinese IPOs on mainland exchanges have raised a total of $37 billion this year — the highest in three years, with tech companies accounting for more than a third of the funds raised. But recently listed popular stocks have already suffered: memory chipmaker CXMT, listed in July, is down 27% from its post-listing peak, and robotics company Yushu Technology is down by half from its August peak.
Regulators step in
According to Bloomberg, financial regulators held a meeting on Thursday to discuss stabilization measures and called on the “national team” to accelerate stock purchases. The upcoming third-quarter earnings season, if it brings surprises, could also improve sentiment. However, investors remain skeptical about the outlook, as even after the recent selloff, Chinese AI-related stocks remain expensive.
The plunge in Chinese tech stocks has exposed a structural vulnerability in Beijing’s AI strategy: when valuations are built on policy expectations and global hype rather than verifiable profits, the fall is deeper than in other markets when sentiment reverses. Star50 has fallen from an 80x P/E to 40x — this looks like a “collapse,” but relative to 5x for Kospi and 21x for Nasdaq, it is still expensive. This means the correction may not be over.
The deeper problem is the financing model. Chinese AI companies rely heavily on equity rather than debt. When stocks are under pressure, the IPO window narrows, primary market valuations decline, and companies’ expansion plans are forced to slow. The “six months” Mironov speaks of is a key threshold: if weakness persists to that point, financing difficulties will turn from a “potential risk” into a “real constraint.”
Regulators have already recognized this — convening the “national team” to support the market is the most direct signal. But support can stabilize the index, yet is unlikely to change the valuation logic.
For investors, the key question is not whether Star50 will rebound, but whether Chinese tech companies can, after the ebb of the global AI trade, prove the validity of the current 40x P/E with real profit growth. Until the answer is clear, volatility is likely to persist.
