The crash that already happened
While Western tech indices wobble, China's correction is complete. The STAR50 index — home to the mainland's largest AI and semiconductor names — has fallen about 40% from its July high in under four months, vaporising some $480 billion in market value. The broader CSI300 sits roughly 20% below its June peak.
For jittery global markets this is not a distant event. It is the first large-scale test of what happens when an AI rally's valuation gives way, and it is happening in a market dominated by retail investors.
How high the rally really ran
According to Goldman Sachs, AI stocks had grown to 42% of China's market capitalisation and 57% of turnover across mainland A-shares and Hong Kong H-shares. Few in a market driven by small investors escaped either the gains or the pain.
The individual names show the scale. Robot-maker Unitree, 8,000 times oversubscribed by retail buyers at its August listing, has halved since it began trading. Memory chipmaker CXMT has lost more than a quarter of its value in the past month. MetaX and Moore Threads, which jumped 700% and 400% on their debuts last year, have halved since July. Optical component makers Zhongji Innolight and Eoptolink are down roughly 60% from June and July highs — partly because Washington is moving to ban them from supplying US data centres.
No single trigger
There was no obvious selling trigger. Traders cite high prices, tax bills and the threat of the US or other governments barring Chinese equipment from data centres. Add a policy stance that wanted the opposite: authorities pushed for a "slow bull" market with reliable returns, cracked down on leverage and high-frequency trading, and state-backed investors sold into rallies to keep gains in check.
"The stock market later evolved into a speculative crazy bull," said Beijing-based fund manager Dong Baozhen. "And now we see the bubble bursting."
Still expensive after the fall
The most striking part is how much optimism survives the crash. STAR50 still trades at around 100 times trailing earnings, down from a high of nearly 250. The Nasdaq 100 trades at 30. That is why part of the market expects further losses.
"What's happening is now going to put a stop for many of the companies trying to get themselves listed," said Hong Hao, managing partner and chief investment officer at Lotus Asset Management in Hong Kong. The damage therefore goes beyond portfolios: it hits the financing pipeline for the next cohort of Chinese tech firms.
The other side of the trade
Not everyone reads it as pure damage. Asia funds remain overweight China despite three months of selling, per HSBC research; Goldman Sachs has Innolight and CXMT among dozens of Chinese AI stocks on a revamped recommendation list, and BNP Paribas strategist William Bratton has called the market a buying opportunity for the careful. The long-term reform agenda, the argument goes, is intact.
Against that sits a blunter observation from Shanghai fund manager Wang Zhuo: Chinese chipmakers and AI suppliers will, like every other Chinese manufacturer, eventually end up in a price war. "There's no exception," he said. "All bubbles inevitably burst."
What to watch
The comparison with the US is the real measure. The Nasdaq is only about 6% below a record set three weeks ago. If Chinese AI stocks at 100 times earnings still look expensive while American ones hold records at 30 times, the question is not whether China overshot — it is how much overshoot is still priced in elsewhere.
