Renowned Chinese economist and Dean of the Drip Lake Advanced Finance Institute at Shanghai Finance and Economics University, Yao Yang, recently stated that AI is being excessively hyped up, while the core issues in China are employment pressure and high vacancy rates in the real estate market.
On March 24th, the 2026 Annual Meeting of the Boao Forum for Asia opened in Boao, Hainan. According to the Economic Observer, Yao Yang mentioned in an interview that domestic demand issues and unemployment pressure are more urgent in China, with the impact on the job market far exceeding the substitution effect of AI technology.
Yao Yang believes that “AI is a huge bubble.”
Yao Yang emphasized that boosting domestic demand is the biggest challenge facing the authorities. He thinks that the current employment pressure and high vacancy rates in the real estate market are core issues. The high vacancy rates in the real estate market, as well as the increasing number of households unable to repay mortgages each year, make these issues more significant than AI.
Yao Yang believes that the key to the sluggish consumption lies in the continuously negative growth of the real estate market and the increasing financial pressure on local governments, which are the “two elephants in the room.” Local government expenditures related to real estate account for about 50% of China’s total expenditures.
He specifically mentioned that the national personal assets are around 700 trillion yuan, with real estate occupying a large share. If property prices were to drop by another 30%, residents’ assets would evaporate by over 100 trillion yuan, causing severe damage to consumption.
Regarding the current employment situation, Yao Yang pointed out that the overall population in major cities has been declining in the past two years, with many people moving back to county towns from big cities. Besides changes in population structure, this also signifies decreasing job opportunities in major cities.
According to data released by the National Bureau of Statistics of the Communist Party of China, fixed asset investment nationwide (excluding households) was 4.85186 trillion yuan in 2025, a decrease of 3.8% from the previous year. Private investment dropped by 6.4%.
As reported by the Daily Economic News, with investment being one of the critical supports for expanding domestic demand, Yao Yang addressed the question of how to achieve stabilization and recovery of investment in 2026. He mentioned that two indicators are crucial. Firstly, the real estate market needs to stabilize as the continuous negative growth of the real estate market significantly hinders the recovery of domestic demand.
Yao Yang stated that there was pressure on local government finances last year. In 2026, stabilizing the real estate market and resolving local government debt risks through special bonds pose even greater challenges.