China’s economy is showing a trend of K-shaped differentiation, with the Chinese Communist Party vigorously developing industries such as AI (Artificial Intelligence) while not investing enough in areas like employment and livelihoods. Chinese economists have expressed various opinions on this matter.
According to a report by “21st Century Economic Report” on September 22, based on data from July and August, the differentiation in economic structure is still evident.
Liu Yuanchun, the President of Shanghai University of Finance and Economics, believes that this year, with the accelerated global development of AI and energy transformation, emerging industries represented by high-tech manufacturing, digital manufacturing, and information technology services in China have been developing rapidly. At the same time, China still faces issues of insufficient domestic demand, with weak performance in consumption and investment, and the real estate market is still undergoing adjustments.
The industry generally believes that China’s economy is currently presenting a “K-shaped differentiation” pattern. “K-shaped differentiation” is a macroeconomic and sociological concept that refers to different groups, industries, or strata showing opposite development trajectories, like the two diverging lines of the English letter “K”: one end continues to grow while the other end continues to decline or stagnate. China’s economy is currently clearly diverging, with AI-related industries, high-tech manufacturing, and exports performing strongly, but overall domestic consumption and private investment remain weak.
According to a report by Reuters, Chinese economist Huang Yiping stated at an economic forum in Beijing on the 19th that AI could exacerbate and prolong the imbalance in China’s economy, saying, “As artificial intelligence applications become increasingly widespread and innovation accelerates, the imbalance between strong supply and weak demand may worsen.”
He believes that the contradiction between total demand and total supply may not disappear in the short term and may even persist for a period of time.
The report mentioned that Chinese economists, including advisors to the People’s Bank of China, have publicly warned that the Chinese government is investing too many resources in AI, a field that creates limited job opportunities, while the investment in areas like boosting overall economic employment and livelihoods is far from sufficient.
At a forum held last week, Vice Chairman of the China Chief Economists Forum Shao Yu delivered a speech. Shao emphasized the need to pay attention to the significant bubble forming in the field of artificial intelligence. He believes that AI could be the “largest bubble in human history so far.”
Shao considers the end of this year as a critical observation window. He thinks the key lies in whether the capital supply required for computing power investment can keep up. If the capital supply cannot sustain and factors like the Federal Reserve’s interest rate hikes are added, the AI bubble is “highly likely to burst.” In such an industry cycle, Chinese enterprises need to adopt different strategies based on their positions.
Liu Jipeng, a professor at China University of Political Science and Law, also cautioned investors at the forum, emphasizing that in the face of the market frenzy brought about by the AI industry revolution, investment should not be limited to speculative concepts. The AI sector has already shown significant differentiation, with the stock prices of some related companies halving, making it easy to fall into such traps through blind speculative trading.
He provided investors with clear criteria for judgment: investment in AI ultimately needs to focus on the fundamentals of the business – whether there are solid orders, genuine profits, and the effectiveness of application implementation must all be carefully considered.
Former advisor to the People’s Bank of China and current professor at Tsinghua University, Li Daokui, previously stated that China’s economy is “operating on the cold side.” He believes that the booming high-tech industry cannot drive a larger economic base.
An analysis by “The Wall Street Journal” looks into the intent of the Chinese government in developing AI, noting that while some Chinese AI models are continuously climbing in global rankings, frontline researchers say they are still lagging behind the United States by several months or even longer. Some believe that Chinese AI is still in the early stages, so the primary task for government offices and AI research laboratories nationwide is to catch up with the United States.
The report indicates that the Chinese government is also aware of the threats and has been issuing regulatory measures for AI in recent years to regulate its development and services, such as censoring chatbots to align with the Communist Party’s standpoint.
According to the “Artificial Intelligence Index Report” from Stanford University, from 2000 to 2023, investment funds initiated by the Chinese government have estimated an injection of $184 billion into AI enterprises. Last year, the Chinese government required utilizing all available means, including fiscal taxation, government procurement, financing, and infrastructure openness, to promote AI development. It is also preparing to invest approximately $295 billion over the next five years to build data centers nationwide, to be operated by state-owned enterprises.