Has China's AI Bubble Burst? What the $480bn STAR50 Rout Means for IPOs, Disclosure and Deals

Has China's AI bubble burst? What the numbers show

On the market data, Chinese AI stocks have fallen much further than their Western peers. Reuters reports that the STAR50 is down 40% from its peak and that the broad blue-chip CSI300 has dropped about 20% from the highs reached in June, while the Nasdaq has fallen only 6% from a record set three weeks earlier. On 26 October the STAR50 closed at 1,315.50, down 2.23% on the day and 26.39% over three months, according to Seoul Economic Daily.

On 13 October the CSI300 hit its weakest level since August 2025, and the CSI AI and CSI Semiconductor indices had already extended their losses from July peaks to more than 30%. The pain is widespread because AI stocks account for 42% of China's market capitalisation and 57% of turnover across mainland A-shares and Hong Kong H-shares, according to Goldman Sachs figures cited by Reuters.

Stock or index	Reported move	Source date
STAR50 index	Down 40% in under four months; about $480bn of value lost	26 Oct 2026
CSI300 index	About 20% below June highs	26 Oct 2026
Unitree (robotics)	Halved since trading began in August	26 Oct 2026
CXMT (memory chips)	Lost more than a quarter of its value in a month	26 Oct 2026
MetaX and Moore Threads (chips)	Halved since July, after debut gains of 700% and 400%	26 Oct 2026
Zhongji Innolight and Eoptolink (optical parts)	Roughly 60% below June and July highs	26 Oct 2026

Valuations remain high. The STAR50 still trades at around 100 times trailing earnings, down from a peak of nearly 250, against about 30 for the Nasdaq 100. "The stock market later evolved into a speculative crazy bull," Beijing fund manager Dong Baozhen told Reuters. "And now we see the bubble bursting."

Why are Chinese AI stocks falling?

There was no single trigger. Traders told Reuters that high prices, tax bills and the threat of the US or other countries banning Chinese equipment from data centres all contributed. The optical component makers Zhongji Innolight and Eoptolink were hit partly because Washington is moving towards barring them from supplying US data centres.

Policy played a part too: the authorities cracked down on leverage and high-frequency trading, and state-backed investors sold into rallies to keep gains in check. Some market participants argue the boom distorted the market itself. "Overemphasising the 'technology content' ... leads to a deviation, even a distortion, in capital behaviour," Leo Wang of Qianchuang Capital told Reuters, adding that it "created a severe bubble in certain sectors and a serious drain on others".

The sell-off also exposes a revenue gap. A Rhodium Group analysis cited by CNBC found that China's AI companies make only about 10% of the revenue of Anthropic and OpenAI, with far higher valuation to revenue ratios at start-ups such as Moonshot and DeepSeek.

The case against a burst bubble

Not everyone accepts the bubble verdict. In an editorial on 27 October, the state-run Global Times argued that the pullback is "a rational cooling of capital from excessive expectations" rather than a failure of the industry. It cited official figures: a core AI industry worth more than 1.2 trillion yuan in 2025, according to Minister of Industry and Information Technology Li Lecheng, and national intelligent computing capacity of 2,185 EFLOPS at the end of June 2026, up 177% year on year, with utilisation of 71.4%.

Some foreign institutions also see value. Goldman Sachs included Innolight and CXMT among dozens of Chinese AI stocks on a revised recommendation list, and BNP Paribas Securities strategist William Bratton has said the market offers buying opportunities for cautious investors. Heise reported that Unitree's shares had recovered noticeably in recent days. Prices have collapsed; whether that is a burst bubble remains disputed.

Beijing's response: the 9 October guidelines and the CSRC

Beijing had signalled concern before the worst of the sell-off. On 9 October the Communist Party of China Central Committee and the State Council issued guidelines on developing "new quality productive forces", setting out 19 key measures in five areas. They call for measures to avoid "involution-style" competition, for full implementation of the "AI Plus" initiative and for systems of technology monitoring, early risk warning and emergency response so that AI is "safe, reliable and controllable".

The guidelines also tell local authorities to avoid investment bubbles. In an official explanation, the National Development and Reform Commission (NDRC) warned against repetitive industrial construction, poorly planned investment and excessive spending to attract projects. Officials can be held accountable where poorly planned projects or reckless investment cause major losses. Financing support continues, however, including through tech bonds and stock listings.

The China Securities Regulatory Commission (CSRC) has not commented on the sell-off: it did not respond to questions from Reuters. Its website says chairman Wu Qing met market participants earlier in October to hear suggestions on improving the capital markets. The message is consistent: Beijing still wants capital in AI, but not in speculative or duplicated projects. Corporate teams working with regulatory and public law advisers should expect project approvals and local subsidies to be tested more closely.

IPOs: the listing pipeline slows and the bar rises

The clearest legal consequence is in equity capital markets. "What's happening is now going to put a stop for many of the companies trying to get themselves listed," Hong Hao of Lotus Asset Management told Reuters.

The regulator was already tightening. CNBC reported on 29 September, citing three sources, that the CSRC wants embodied AI start-ups seeking to list to meet three specific criteria, and that only a handful, or none, may qualify. At least two dozen humanoid-related companies have filed to list in Hong Kong, which has allowed confidential tech filings since May 2025, and mainland companies listing there also need the CSRC's blessing. Unitree itself was fast-tracked to a Shanghai listing on 19 August, raising about 6.1 billion yuan; a day later its founder cautioned that commercialisation beyond dancing robots remained years away.

For sponsors, underwriters and issuers' counsel, this points to longer timetables, repriced deals and more attention to how prospectuses describe revenue, commercialisation and valuation. Teams advising on Hong Kong listings or mainland corporate transactions may find that issuers look to other venues; Singapore's recent S$242m Foundation Healthcare listing shows that regional alternatives remain open for some sectors.

Export controls now run in both directions

Trade restrictions are part of the story on both sides. In mid-October China's Ministry of Commerce revised its Catalogue of Technologies Prohibited and Restricted from Export, adding "23 technologies related to large-scale models, intelligent agents, computing clusters, and information processing". Exporters of listed technology must now apply for a licence, although technology issued under open source licences is exempt. State media later reported that two companies, named elsewhere as DeepSeek and MiniMax, had been authorised to continue exporting.

On the other side, the threat of US and other bans on Chinese data centre equipment is already in share prices. Cross-border buyers, licensors and investors now need export control advice on both regimes before signing, not after. The pattern echoes the Wingtech and Nexperia dispute and Beijing's use of a blocking order in the EU foreign subsidies case involving JD.com.

What advisers should watch: disclosure, investor claims, restructuring and deals

The sell-off will not stay a market story. Unitree's IPO was 8,000 times oversubscribed by retail buyers, and Reuters spoke to individual investors who bought because they saw official support behind the sector. When retail losses are this concentrated, scrutiny of offering documents, trading conduct and promotional statements usually follows, and market abuse specialists should expect questions on both. Wang Zhuo of Shanghai Zhuozhu Investment Management predicts the sector "will eventually end up in a price war", which would test weaker balance sheets and bring restructuring advisers into play.

Area	What to check now
Listings	Timetables, valuation and pricing assumptions; whether CSRC criteria for embodied AI apply; venue choice
Disclosure	Risk factors on valuation, revenue, commercialisation timelines and export bans; consistency of promotional statements
Investor claims	Retail concentration, statements made around offerings, exposure where shares have halved
Export controls	MOFCOM catalogue licences for outbound AI technology; US restrictions on chips and data centre suppliers
Funding and restructuring	Covenants and valuations in later private rounds; local government project accountability under the 9 October guidelines
M&A	Valuation resets, earn-outs and regulatory approvals on both sides

Lenders and funds should revisit valuations agreed at the peak. Where distressed groups hold assets across Asia, recognition rules such as Malaysia's new cross-border insolvency regime may matter. Clients also face a widening gap between AI regimes, from Beijing's monitoring and early warning systems to the EU AI Act timetable. Corporate INTL's directory lists banking and finance advisers, technology specialists in China and firms across China and Hong Kong.

Frequently asked questions

Has China's AI bubble burst?

Reuters says it has: its 26 October 2026 analysis reports that the STAR50 index of AI and chip leaders fell 40% in under four months, wiping out about $480 billion. China's state-run Global Times rejects the label and calls the fall a correction of overheated valuations.

Why are Chinese stocks crashing?

Traders cite high valuations, tax bills and the threat of foreign bans on Chinese data centre equipment. Curbs on leverage and high-frequency trading, and state-backed selling into rallies, also removed support. Reuters reports no single trigger.

How much have Chinese AI stocks lost?

About $480 billion of market value on the STAR50 alone. Unitree has halved since its August listing, MetaX and Moore Threads have halved since July, and Zhongji Innolight and Eoptolink are about 60% below their summer highs.

What has the Chinese government done?

On 9 October 2026 the CPC Central Committee and State Council issued guidelines telling local authorities to avoid investment bubbles, with accountability for officials whose projects cause major losses. The CSRC chairman met market participants in October, and the regulator is reported to be raising the bar for embodied AI listings.

Will the sell-off affect Chinese AI IPOs?

Likely. Lotus Asset Management's Hong Hao told Reuters it will "put a stop" to many companies trying to list, and CNBC reported that few humanoid robot start-ups may meet the CSRC's new criteria.

What are China's new AI export controls?

In mid-October the Ministry of Commerce added 23 AI-related technologies to its export catalogue, so exporters need a licence. Open source technology is exempt, and DeepSeek and MiniMax have reportedly been authorised to keep exporting.

Sources

1. The Business Standard (Reuters): In China, the AI bubble has already burst (26 October 2026)
2. Seoul Economic Daily: China's AI rally unravels as Unitree halves, CXMT slides 25% (27 October 2026)
3. Business Recorder (Reuters): China blue chips fall to 14-month low on tech selloff (13 October 2026)
4. Global Times: GT Voice, China's AI stock pullback isn't a signal of a bubble bursting (27 October 2026)
5. The State Council of the PRC: China issues guidelines on developing new quality productive forces (9 October 2026)
6. Tech Wire Asia: China warns against AI investment bubbles in new guidelines (12 October 2026)
7. CNBC: China has three new criteria for humanoid robot IPOs (29 September 2026)
8. The Register: After threatening AI export bans, China allows DeepSeek to keep selling (26 October 2026)
9. heise online: Has China's AI bubble burst? Index down 40% from its peak (27 October 2026)

About this article

This analysis was researched and written by The Corporate INTL Newsroom, which covers cross-border legal, regulatory and business developments for lawyers, professional advisers and financiers in over 150 jurisdictions. It has been checked against the State Council's published guidelines of 9 October 2026 and primary market reporting. This article is general information, not legal or investment advice; for advice on a specific matter, consult a qualified adviser. Last reviewed 28 October 2026. For more analysis like this, visit the Corporate INTL newsroom or subscribe to Corporate INTL.