China’s stock market is crashing, and investors are starting to wonder how much worse things could get. Chinese stocks have been falling for weeks as traders lose patience with the country’s struggling economy, expensive AI companies, and Beijing’s attempts to keep everything moving.
The CSI 300 index, which tracks 300 major companies listed in Shanghai and Shenzhen, entered a bear market Thursday after dropping 20% from its June peak. By Friday, the benchmark had fallen another 3%, making an already miserable situation even worse.
The index has seen 10 consecutive weeks of decline, and according to LSEG figures released during the week, the figure is 2.6%. The problem is not only confined to the US, as it has also spread to Asia, where the index that measures large Chinese companies is down as much as 2.9%.
There is yet another issue to consider; retail investors trade mostly in China. HSBC believes their share in trading is close to 90%, while in the New York stock exchange, it is 20%-25%.
China’s AI excitement is fading while consumers keep their wallets closed
In the current year, up until recently, the companies from China in the tech industry had been receiving plenty of coverage. The reason was quite clear – due to the rapidly developing industry of artificial intelligence in the country, the stock price was about to explode.
But as it often happens, popularity does not equal profits.
Now the investors are assessing the actual worth and profitability of the firms considering how they capitalize on the development of artificial intelligence.
Unlike other companies, which were valued based on potential capabilities instead of the numbers, such inflated expectations may lead to the disappointment of the investors resulting in mass sale of shares.
The situation does not apply only to China but the shares of all artificial intelligence companies are being put under pressure around the world including Asian markets.
The challenge that faces Chinese technology companies is that they may find themselves in difficulty as a result of weak stock prices, which could reduce their ability to raise capital to support business growth.
As far as China’s domestic consumption is concerned, it continues to be an issue. The economy actually performed better than expected during the third quarter, with GDP growth reaching 4.5%.
That means that Beijing has become close to achieving its yearly growth goal of 4.5% to 5%, since the last quarter was below this range.
However, investors need proof that households have started consuming more, firms are seeing better profits, and confidence has been restored.
Beijing’s spending cuts are raising more questions about its rescue plans
Another major concern is that China’s government has been cutting spending when investors were hoping for stronger support.
September was the seventh consecutive month of reduced public expenditure. Government figures showed broad spending falling 3.7% from a year earlier, while revenue declined 3.5%.
The monthly fiscal deficit consequently narrowed by 3.8%.
Across the first nine months of 2026, government expenditure exceeded revenue by 7.57 trillion yuan, or approximately $1.1 trillion.
Those spending restrictions have done little to strengthen domestic demand, leaving booming exports to carry much of the economy’s growth.
Investment conditions remain difficult, too. Fixed-asset investment continued contracting, while infrastructure spending recorded a slightly deeper decline.
Beijing hasn’t completely abandoned stimulus, though.
Officials recently introduced mortgage subsidies for eligible homebuyers and authorized local governments to issue an additional 550 billion yuan in bonds to support economic activity.
Those measures followed earlier efforts to accelerate previously approved programs, including 800 billion yuan in financing through state-owned policy banks intended to encourage investment.
Additional spending could arrive as major national projects get underway, including the Six Networks initiative, which forms part of China’s broader technology ambitions.
Authorities have also used government-backed stock purchases to limit market losses.
Still, there’s a difference between stopping prices from falling temporarily and giving investors a reason to buy again.
Earlier expectations of a much larger stimulus package helped lift shares, but those hopes have weakened as Beijing favors smaller interventions.
For now, traders are watching whether these policies actually improve company earnings, revive household demand, and bring private investment back into the economy.
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