Chinese profits rose 25.7%. The CSI 300 fell 9% and the Star 50 fell 29%

Profits at onshore-listed Chinese companies rose 25.7% in the three months to June, the fastest in nearly five years and heavily concentrated in AI-linked firms. The CSI 300 has fallen about 9% this quarter and the tech-heavy Star 50 has dropped 29%, as investors began treating AI spending as a cost rather than a promise.

Profits at onshore-listed Chinese companies rose 25.7% in the three months to June, the fastest pace in nearly five years. The CSI 300 Index has fallen about 9% this quarter, Bloomberg News reported.

The tech-heavy Star 50 Index has dropped 29% over the same period. Both had run hard in the quarter before, with the Star 50 up 76%.

The earnings were narrow. UBS Securities puts profit growth at 42% on the ChiNext board and 370% on the Star board, far ahead of the main board.

So the growth came from AI-linked companies, and the market sold them anyway. Much of the optimism was already in the price.

Alibaba fell in Hong Kong after reporting higher revenue and sharply lower profit, which it put down to the cost of AI projects and computing infrastructure. It is raising $10.2bn to spend on the same thing.

Tencent weakened after more than doubling its AI spending. Neither result was bad on its own terms.

TNW reported in August that Tencent’s capital spending rose 176% to 52.8 billion yuan while free cash flow turned negative by 13.8 billion.

“Strong numbers no longer work for tech,” said Vey-Sern Ling, a managing director at Union Bancaire Privee. He cited uncertainty over AI investment, unclear return on investment and rising financing costs.

Part of the picture is domestic. Demand is weak, property remains in a long downturn, and a stronger yuan produced 107 billion yuan of exchange losses at non-financial A-share companies in the first half.

New listings are also draining liquidity from stocks that have already run, with Yangtze Memory among the offerings still to come. Tax enforcement has tightened as well.

The AI part is not domestic. TNW has been tracking the same arithmetic in Big Tech’s cash flow, but China is the first large market to watch a full capex cycle arrive in reported profit and mark it down.

Europe sits at the other end of that cycle. Its spending has not been made yet, let alone reported, and its exposure runs through the supply chain rather than through operators.

The Commission has committed EUR 20B to AI gigafactories, drawing 77 proposals across 16 member states and 60 sites, with construction of the first planned for 2027. Europe will learn what the money does to its numbers several years after Shanghai did.