Geopolitical uncertainty has also added to the pressure, analysts said – with Chinese suppliers facing the prospect of US restrictions on their equipment being used in American data centres, which could potentially limit access to overseas customers.
Christopher Beddor, deputy China research director at research firm Gavekal Dragonomics, said that the downturn was part of a wider regional sell-off and a recent drain of market liquidity.
“There are also real concerns about the earnings prospects for some of China’s AI companies as they struggle to monetise open-weight models,” he said, referring to AI models whose underlying parameters are publicly available for others to use and adapt.
THE REAL TEST FOR CHINA’S AI AMBITIONS
Despite the sharp decline, analysts cautioned against mistaking a stock market downturn for a broader setback to China’s AI ambitions.
The more immediate risk, they said, is whether weaker investor confidence could make it harder for Chinese technology firms to raise capital – particularly those with high spending and limited revenues.
“It will make fundraising harder in terms of valuation and delay, especially for firms that are burning cash without immediate revenue,” said Ng from Natixis.
But he added that strategically important firms would likely continue to benefit from substantial state support, leaving smaller players more vulnerable to the downturn.
Wong from the CAIA Association said the correction could also make investors more selective, potentially slowing some projects and encouraging consolidation among companies with weaker business models.
China’s AI industry could still draw on government-backed funds, bank lending, corporate bonds and private investment, Wong said – reducing its dependence on stock market fundraising.
“The key distinction is between supporting the development of an industry and generating an attractive return for every investor,” he added.