It Appears That the AI Bubble Has Just Burst in China

In China, the fate of the country's AI industry may foreshadow what lies ahead for the rest of the world, as economists observe the massive investments pouring into the sector. According to a Reuters report, the AI bubble in China has "already burst," or more accurately, "shriveled like a rapidly deflating balloon." Over the past four months, the STAR50 index of AI and semiconductor companies plummeted by 40 percent, resulting in a loss of $480 billion in market value.

Beijing-based fund manager Dong Baozhen remarked, "The stock market later evolved into a speculative crazy bull," only to witness the bubble burst. Shares of Unitree, a prominent robotics company, plummeted by half since its highly publicized IPO in August. Furthermore, chipmaker CXMT has lost over a quarter of its value within a single month.

Despite the market fluctuations, AI investors remain optimistic. DeepSeek, one of China's leading AI companies, recently raised $15 billion in one of the largest funding rounds in the country's history. Furthermore, Huawei secured a $2.3 billion loan from Chinese banks for expanding its AI chip production.

The situation in China differs from that of other global markets, as the United States consistently puts pressure on China to limit its participation in global competition through tariffs and potential bans on Chinese companies supplying equipment to data centers. The AI bubble in China might be a consequence of the US and other western nations blocking Chinese companies from selling their products overseas, as well as a result of market arrogance.

The scale of investments in AI and AI-related industries is comparable to that of Western economies, where the disappointing return on investment is becoming increasingly evident. Anthropic's recent admission in its IPO filing of an $80 billion loss and a plan to allocate another $1 trillion on data centers over the next decade only further fuels concerns about profitability across the industry.

State-backed investors in China have sold into market rallies to prevent rapid gains, aiming to mitigate volatility. However, the dwindling demand for AI products indicates that the bubble may not have been as large as initially believed.