Chinese Stocks Enter Bear Market as AI and Policy Hopes Fade

Chinese stocks entered a bear market on Thursday, October 22, as prolonged weakness in consumption and mounting doubts about artificial intelligence companies’ profitability intensified selling. Bloomberg reported that the decline had erased $2.4 trillion from mainland shares since their May peak, leaving Chinese equities among the world’s weakest performers.

The CSI 300 Index fell 1.8% at the close, taking its decline from a June high to 20%. That threshold is commonly described as a bear market, although the label itself does not establish whether prices are approaching a bottom or have further to fall.

The retreat reverses a rally that began with stimulus measures in late 2024 and subsequently gathered strength from enthusiasm for AI. According to Bloomberg, investors have been disappointed by the absence of a broad spending package, even as authorities have introduced measures intended to support stocks.

The pressures span two different investment questions: whether domestic spending can support stronger corporate earnings, and whether AI investment can produce profits sufficient to justify valuations. Their overlap matters because a market recovery built on technological optimism can remain vulnerable when the broader consumption backdrop offers limited reassurance.

For AI-related businesses, confidence in the technology’s potential is not the same as confidence in shareholder returns. Spending can support future capabilities while also raising questions about costs, competition and the timing of revenue. Falling share prices do not resolve those questions, but they make the assumptions behind earlier enthusiasm more consequential.

Weak consumption presents a separate challenge. Expectations of policy support can lift sentiment before companies report better results, but a lasting improvement becomes harder to assess when demand remains subdued. The distinction is between measures that influence trading conditions and developments that strengthen the underlying business outlook; the two need not arrive together.

Bloomberg reported that authorities have sought to restrain selling and support the market through state-backed purchases. Analysts cited in the report cautioned that such buying might not deliver a sustained recovery on its own. Those efforts address immediate market pressure, while investors’ concerns also extend to earnings and economic demand.

The scale of the losses underscores how sharply expectations have shifted since the rally. Market value represents the prices investors assign to listed companies, rather than an equivalent amount of cash withdrawn from the economy. Even so, a prolonged repricing signals reduced willingness to pay for anticipated future growth.

The next test is whether policy developments and corporate results can give investors grounds to reassess that outlook. Bloomberg cited analysts warning that weak sentiment could persist into early 2027 without fresh policy or technology catalysts. That remains a conditional assessment, not a forecast that a bear market must follow a fixed course.