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Morning Edition · Sunday, October 25, 2026Published at 1:18 AM EDT · New York
Chinese stocks have lost $3.5 trillion since May as corporate earnings miss forecasts
The CSI 300 entered a bear market last week, and MSCI China companies that have reported results are running 9% below consensus, while official data show industrial profits up 15.7% this year.
China's equity market has lost $3.5 trillion in value since its peak in May, according to Bloomberg. Last week the sell-off pushed the onshore CSI 300 Index into a bear market. A Hong Kong technology index is close to losing all of its gains since Beijing's stimulus package two years ago. Bloomberg's account, republished by The Japan Times, says investors increasingly believe China's leaders are in no hurry to support an economy that is slowing at a pace they can accept.
Consensus 2026 earnings forecasts for MSCI China Index companies have fallen more than 4% since the end of March, and forecasts for the Hang Seng Tech Index have fallen more than 13%. Among MSCI China members that have reported, results are on average 9% below expectations. Large internet companies are spending heavily on artificial-intelligence (AI) infrastructure, and some have turned to share sales to raise money, including Alibaba Group's $10 billion follow-on offering.
Chinese official data present a different picture. The National Bureau of Statistics reported that profits at large industrial companies rose 15.7% in the first eight months of 2026, with mining up 35.1% and manufacturing up 17.4%. After the market closed on October 23, a group of A-share companies reported nine-month profit increases above 400%, mostly in electronics and nonferrous metals, according to the financial portal JRJ (translated from Chinese).
Neither version alone describes the economy accurately. Profits are moving toward upstream producers and hardware makers that benefit from higher commodity prices and the state's push for domestic chips. Consumer-facing internet platforms are paying for the AI race with shareholder capital. The equity benchmarks give large weight to those platforms.
Part of a tracked trend
Beijing Tolerates a Slow Grind
Beijing keeps putting financial stability and strategic technology investment ahead of broad consumer stimulus, so Chinese corporate earnings and equity valuations keep falling behind headline growth and each rally fades without policy support.
What this means
Beijing is choosing not to repeat the credit-driven rescues of past cycles. From a sound-money perspective, that allows weak earnings to show in prices instead of being covered with new lending. It also means shareholders in platform companies are funding a national AI build-out through dilution. Hong Kong technology shares and foreign funds that treat Chinese indices as cheap are the most exposed. Upstream metals producers and state-favored hardware makers are better placed. The consensus "cheap China" argument may be wrong because the profit pool is moving away from the companies that dominate the indices. Precedent supports caution. After the 2015 crash, state buying stabilized index levels but not returns, and the rally after September 2024 faded within months. The likelier outcome is that the leadership tolerates further declines until they threaten financial stability, while platforms keep raising equity to fund AI spending over the coming months. This read is wrong if the Central Economic Work Conference in December announces a large fiscal package aimed at household consumption.
What to watch
- More share sales by Chinese internet companies to fund AI spending. Each one would confirm that shareholders are paying for the build-out.
- Signs of state fund buying in onshore shares. This would show whether Beijing has decided that stability is threatened.
- The official September industrial profit data due this week. A slowdown from the 15.7% pace would narrow the gap between official data and listed-company results.
Observations to monitor, not financial advice.
Synthesized from: The Japan Times (Bloomberg) · Bloomberg · Sina Finance (National Bureau of Statistics data) · JRJ (金融界)
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Comments
1Oct 25, 5:18 AM
Official industrial profits exclude internet platforms, so 15.7% growth can coexist with listed misses driven by AI spending and dilution such as Alibaba's $10 billion share sale.