Chinese equities have shed $3.5 trillion in value since their peak in May, with last week's selloff pushing the onshore CSI 300 Index into an official bear market. Hong Kong's technology sector gauge is now close to erasing all the gains it accumulated after Beijing's broad growth support package two years ago. Mainland trading volumes have fallen to near their lowest levels since July of last year, while margin balances — a measure of leveraged bets — have shrunk to a one-year low.

At the heart of the rout is an earnings crisis that has spread across industries. Weak consumer spending and intensifying price competition between companies are squeezing profit margins in banking, electric vehicles, and artificial intelligence development. Consensus 2026 earnings estimates for companies in the MSCI China Index have fallen more than four percent since March, while Hang Seng Tech profit forecasts have been slashed by over 13 percent during the same period. Early third-quarter reporters have missed expectations by an average of nine percent.

Investors are caught in a trap of their own uncertainty: the economy is weak enough to damage earnings, but not weak enough to force Beijing into the kind of forceful stimulus that might reverse the slide. Chinese authorities have deployed so-called national team state funds to put a floor under prices, but this has done little to restore confidence. Alibaba's $10 billion additional share sale to fund AI investments — diluting existing holders — added to the sense that companies are in survival mode rather than growth mode.