IN THE GOOD old days China appealed to investors as the world’s greatest convergence story. Its living standards would catch up with those in the West, its economy would multiply in size and the value of its stock market would grow in tandem. Or so the story went. Investors just needed to position themselves on the right side of history before everyone else arrived.
In more recent years China’s residual appeal to global investors has rested on the opposite logic—not convergence, but diversification. There is less talk of China’s destiny, more recognition of its idiosyncrasy. China, it has become clear, dances to the beat of the Communist Party’s own drum. That means it can defy global trends, good and bad.
One recent example is the stock market. Global equities have risen by about 10% this year, according to the MSCI World index, despite recent jitters. Other East Asian economies like South Korea and Taiwan have ridden the artificial-intelligence boom to far greater heights. China is also tightly stitched into the AI supply chain and boasts several innovative model-makers of its own, including listed companies like Z.ai and MiniMax, which both trade in Hong Kong. But China’s tech shares have plummeted in the second half of the year, onshore and off. And its blue-chip index, the CSI 300, is down by about 13% so far in 2026. Chinese equities have put the sync into idiosyncrasy.
China’s government seems fed up with this particular source of exceptionalism. The rout has prompted fresh buying from the “national team”, state-owned financial institutions that prop up the market when needed. China’s central bank has also lent a hand. On November 2nd it said it would dust off a scheme that helps institutional investors, such as insurers and brokers, obtain the liquid collateral they need to finance their equity purchases. It will also make it cheaper for companies to borrow to buy back their own shares.
Why is the stock market sagging? Some of it has to do with those Chinese characteristics. Take fiscal policy. Other big economies would benefit from budgetary restraint but will see little of it. In China, by contrast, the government is tightening its belt when it should be loosening it. Its fiscal deficit, broadly defined, will narrow this year by 1.4% of GDP, reckons Goldman Sachs, a bank.
An endless property slump is also still taking a toll. On October 29th Fitch, a credit-rating agency, said it might downgrade the bonds issued by Zhuhai Huafa Group, a state-owned conglomerate based in China’s Pearl River Delta. Known for a 72-storey tower overlooking the coastal cities of Zhuhai and Macau, the group also has lofty debts worth 413bn yuan ($62bn). According to Bloomberg, it recently delayed payment on two trust products (debt obligations that do not trade on exchanges) and asked for an extension on bank loans. The share price of its listed property unit fell by about a fifth—never mind that the group’s main owner, the city of Zhuhai, is unlikely to let it default on a publicly traded bond.
Another explanation for China’s underperformance is more worrying. It may be an early victim of an investment trend that seems to be spreading around the world: the loss of enthusiasm for AI. In the West investors have begun to worry that AI models will eventually become commoditised. Pricing power will disappear as innovators struggle to maintain a durable lead over imitators. In China that grim end-game was more or less the industry’s starting point.
Chinese AI labs openly shared the mathematical “weights” that make models clever. That encouraged adoption, and helped the labs attract brainiacs motivated by intellectual glory as well as financial success. But openness comes at a commercial cost. The AI-related revenues of China’s six leading firms together amount to about a tenth of the combined revenues of America’s top two, OpenAI and Anthropic, according to Epoch AI, a research firm.
China may also offer a foretaste of what happens when the supply of new tech shares finally catches up with demand. It has tested investors’ appetite with a crowded pipeline of initial public offerings. America may find that Anthropic’s highly anticipated listing provokes similar indigestion, even in its much bigger market.
China’s oddities deter many global investors. A bigger worry in tech circles is that China’s lean present becomes the rest of the world’s future. China may be less an outlier than an omen.