Will AI Answer for China’s Economic Needs? Yes and No.

Commentary

Many in China—inside and outside government—look to artificial intelligence (AI) as an answer to the country’s demographic problem.

Typical of such thinking is a recent article by professor Teng Bingsheng of Cheung Kong Graduate School of Business. Because decades of low birth rates will increasingly starve China of young workers to replace those retiring, Teng and the thinkers behind Beijing’s recent five-year plan will have to do the work and save China from the economic problems that would otherwise ensue. AI, they argue, will increase productivity and provide the economy with a new growth engine.

These thinkers make a good case, except when it comes to who will buy all the output produced by this AI-run economy, especially since China’s economy already produces more than its domestic buyers can absorb.

That China has a demographic problem is beyond dispute. The one-child policy, which began in the late 1970s and persisted for decades until very recently, denied the country a younger generation large enough to replace the older generation of plentiful workers who are presently in the process of retiring. In the absence of some substitute, the shortage of workers will ultimately constrain the economy’s productive capabilities.

Even if the recent relaxation of the one-child policy were to increase fertility rates, which does not seem to be occurring, it would be some 20 years before these new births would reach an age when they might ease the problem. In the meantime, a worker shortage will persist. Indeed, it is already evident in some sectors.

Enter AI. Teng, among others, including those who wrote the five-year plan, see this amazing technology increasingly substituting for human labor. Far beyond the robotics that China has long embraced, AI can operate without a pre-written script and thus has the potential to replace people in a wide variety of jobs and occupations.

Proponents of AI point out convincingly that it could actually improve on human management and execution in many areas, raising the efficiency of existing productive facilities and equipment, replacing people in knowledge-based jobs, and allocating resources more intelligently and effectively across complex systems. China’s official AI-Plus Initiative signals official intent to embed these advantages across all manufacturing, services, and governance.

No one, even the most enthusiastic AI proponents, believes that its integration into the economy can happen quickly. Before China can realize the full advantages of doing so, it will need much more computing power than the country currently has at its disposal.

Perhaps even more challenging, the widespread adoption of AI will require reforms to existing data governance rules and practices, regulation generally, cybersecurity matters, workforce training, and workflows. In time, however, they see that worker substitution will answer China’s needs.

While all this sounds feasible, if not easy, it nonetheless misses a crucial point. The AI solution seems not to give a thought to who will buy all this enhanced Chinese output.

The domestic economy certainly does not seem like a good prospect. China already produces far more than its domestic economy buys. That excess is so great, in fact, that price wars have forced down producer prices for some years now.

Beijing wants to increase consumer spending and make it a driver of economic growth, but the AI-substitution solution would work directly against this aim. After all, with AI doing much of the work, incomes will fall even further than they have relative to the economy’s output potential. And without active domestic buyers, it is hard to see investment by private businesses providing much of a growth engine.

The result would then make China more export-dependent than it already is, at a remarkably inauspicious time. The United States has shown a dramatic and growing hostility toward Chinese trade, as has Europe, although in a more muted way. Exports to the United States have already flagged dramatically.

Although China was able to substitute for lost U.S. sales in Europe and the so-called global south, the European Union began to restrict Chinese imports late last year, and even nations in the global south have begun objecting increasingly to the flood of Chinese products and are seeking ways to limit it.

The fact that this so-called solution so neglects the demand side of the economic equation is actually indicative of a more fundamental flaw in Communist Party logic. China’s centralized decision-making, like that of the Soviet Union before it, seems to focus almost exclusively on production, not even on what its population wants, but rather on what the state wants.

Presumably, the objective of this singular focus on output is to develop the ability to hold the world to ransom for most of what it needs. But as the United States, Europe, and, increasingly, the global south have shown, they have no desire to be held to ransom by Chinese production. Even if they were, the situation would fail in the long run.

Useful and impressive as AI is, it cannot answer China’s demographic question until the country’s leadership learns to think about economics in broader terms.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.