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China's stock market has slipped into bear-market territory after months of optimism driven by artificial intelligence (AI), technology-led growth expectations and hopes of government support gave way to concerns over valuations, consumer demand and economic momentum, a report has said. 

The CSI 300 Index, which tracks 300 large companies listed in Shanghai and Shenzhen, fell as much as 1.6 per cent on Thursday, extending its decline from the June peak to nearly 20 per cent, according to a report by prominent Bangladesh-based English-language daily newspaper The Daily Sun.

The drop pushed the benchmark into technical bear-market territory, a term commonly used when an index falls 20 per cent or more from a recent high.

Selling pressure was not confined to mainland markets. Hong Kong-listed Chinese stocks also came under strain, with a key equities gauge falling as much as 2.9 per cent as investors reassessed the outlook for China's economy and technology sector.

The recent decline marks a significant shift in investor sentiment. Chinese technology stocks had rallied strongly earlier this year amid expectations that advances in AI and Beijing's efforts to strengthen the country's technology capabilities would support long-term growth. 

However, investors are now focusing more closely on corporate earnings, valuations and the actual returns companies can generate from AI-related investments.

Market participants have become increasingly cautious as expectations surrounding the AI boom have outpaced profitability in several segments of the technology sector. 

The reassessment comes amid a broader global pullback in AI-linked stocks, adding further pressure on Chinese equities.

Analysts note that a prolonged downturn could create challenges for Chinese technology firms, many of which rely on capital markets to fund expansion plans and invest in new products and innovations.

Concerns about China's domestic economy have also weighed on market sentiment. While the country's third-quarter economic growth exceeded expectations and kept Beijing on track to meet its annual growth target, investors remain unconvinced that the recovery is broad-based.

Weak household consumption continues to be a major concern, raising questions about the strength of demand across retail, internet and other consumer-facing industries. 

Investors are looking for stronger evidence that business conditions are improving, corporate profits are growing and consumers are becoming more confident about spending.