AI bubble bursts in China as STAR50 Index plunges 40%, erasing $480 billion

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 actively traded by the “national team,” state-backed investors, reached 128.7 billion yuan ($19 billion) last week, as per Bloomberg data.

That’s 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 hid hares 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.