China's state-led funds stepped into the market with their heaviest buying since the April 2025 trade war rout, as authorities scrambled to stem a deepening selloff driven by the collapse of the country's AI stock bubble. Inflows into nine exchange-traded funds (ETFs) actively traded by the "national team," state-backed investors, reached 128.7 billion yuan ($19 billion) last week, as per Bloomberg data.
That is the most since nearly 140 billion yuan flowed in during April 2025, when President Donald Trump's tariffs battered markets and Beijing intervened to prop up sentiment. The intervention comes as the mainland's STAR50 index of AI and semiconductor leaders has plunged 40% from its July high, vaporising roughly $480 billion in market value.
The broader CSI 300 blue-chip index has dropped about 20% from its June peak, slipping into bear market territory after ten consecutive weekly declines. The reversal reflects a rally that ran far higher than Western markets.
AI stocks had grown to 42% of China's market capitalisation and 57% of turnover across mainland and Hong Kong shares, leaving few small investors unscathed. Retail favourites hit hard as robot-maker Unitree has halved since its August listing, while chipmakers MetaX and Moore Threads have each lost about half their value since July.
Despite the slump, the STAR50 still trades at around 100 times trailing earnings, down from nearly 250 but far above the Nasdaq 100's multiple of 30, prompting concerns the selloff could worsen. The collapse threatens to scuttle tech fundraising and new listings, and has stalled Beijing's push for a stable "slow bull" market.
Analysts warn that without further structural reforms, the volatility may persist as investors remain wary of the inflated valuations that characterized the sector earlier this year. Market observers note that the "national team" intervention is a desperate attempt to restore confidence among retail investors who have been the primary victims of the recent market correction.
The scale of the loss, totaling nearly half a trillion dollars, underscores the fragility of the tech-heavy growth strategy pursued by domestic firms. Furthermore, the spillover effect into the broader financial sector remains a significant concern for regulators.
As the government attempts to balance market stability with long-term economic goals, the pressure on state-backed entities to continue providing liquidity is expected to increase in the coming weeks. The current situation highlights the inherent risks of state-led market interventions, which often struggle to address the underlying causes of asset bubbles.
With global economic headwinds also mounting, China's ability to engineer a soft landing for its tech sector remains in question. Investors are now closely monitoring upcoming policy announcements from Beijing for signs of further stimulus or regulatory adjustments.
The consensus among financial experts is that the era of unchecked growth for AI-linked stocks in China has come to a definitive and painful end. As the market seeks a new equilibrium, the focus will likely shift toward companies with stronger fundamentals and sustainable revenue models.
For now, the volatility in the STAR50 index serves as a stark reminder of the dangers of speculative bubbles in emerging technology sectors.