Yao Yang: The AI bubble burst is inevitable; we need to pay more attention to short-term issues.

Special Topic: Boao Asia Forum 2026 Annual Conference

During the Boao Asia Forum 2026 (hereafter “Boao”), tariffs and artificial intelligence (AI) became the two hottest topics.

On one hand, the AI boom is sweeping the globe. For the first time, Boao introduced humanoid robots and held four sub-forums related to AI. However, as AI gradually becomes practical, its potential negative impacts are also a major concern. On the other hand, since 2025, the U.S. has repeatedly wielded tariffs against major trading partners, impacting global stability and economic recovery. Delegates from various countries engaged in intensive discussions on how to respond to the new global trade landscape.

On March 25, in response to these two issues, the Economic Observer conducted an exclusive interview at Boao with姚洋, Dean of the Shanghai University of Finance and Economics D Water Lake Advanced Finance Institute. He stated that AI is a huge bubble, and its burst is only a matter of time. However, Silicon Valley tech companies don’t want the AI bubble to burst, so they keep creating anxiety and exaggerating the bubble recklessly. Once it bursts, it could trigger a technological crisis.

On the macroeconomic level,姚洋 believes that instead of focusing on China’s long-term growth trends, we should confront short-term issues such as employment pressure and high vacancy rates in real estate. Currently, it is especially urgent to unblock debt repayment channels and get the economy moving. “We should seriously study and implement the debt management model from the 1990s, using capital injections to facilitate the circulation of triangular debt. Implementing this model requires the courage of government departments at that time.”

Beware of the AI Bubble

Reporter: AI is a hot topic at Boao this year. Will AI impact employment?

姚洋: AI replacing human labor is essentially creating anxiety. AI replacement is a long-term process. It’s impossible for AI to replace a large number of jobs in just one or two years. We should examine the actual impact after AI is implemented. For example, during my research, I found that toy manufacturers started using automation in the 1960s to replace manual sorting of plastic parts. Broadly speaking, this is also AI replacing jobs.

Moreover, unemployment caused by macroeconomic fluctuations should not be blamed on AI. Currently, the proportion of companies using AI to replace labor is still very low. Compared to unemployment caused by domestic demand fluctuations, AI-driven job displacement is negligible.

Reporter: How do you view the global AI frenzy?

姚洋: Right now, AI is discussed excessively. This wave is largely driven by purpose-driven hype from a group of Silicon Valley tech companies. AI is a huge bubble.

Nvidia’s market value is already close to Japan’s annual GDP (Japan is the world’s fourth-largest economy, with a 2025 GDP of about $4.43 trillion). Is that normal? No matter how great a company is, it cannot compare to the productivity of 120 million people. AI is definitely a huge bubble.

However, Silicon Valley tech firms don’t want the bubble to burst, so they keep fueling anxiety and exaggerating the bubble.

Reporter: Will the next global economic crisis be a tech crisis?

姚洋: It will definitely be a tech crisis. The AI bubble will burst sooner or later. The emergence of DeepSeek has pricked the bubble, but the market has recovered for now.

The next trigger for the bubble’s burst might come from a technological breakthrough in China, such as the development of photonic chips or optoelectronic fusion chips. From industry sources, such breakthroughs could take 2–5 years or longer. Once achieved, the collapse of Silicon Valley tech giants’ market value could trigger a chain reaction.

Reporter: How should government agencies view the AI hype?

姚洋: The most urgent task for governments now is to boost domestic demand. I worry that the AI hype might cause governments to overlook short-term issues, making economic recovery more difficult. If short-term problems are hard to solve, discussing long-term strategies becomes meaningless.

Tariff Wars and Global Trade

Reporter: You attended the “Global Trade New Pattern under Tariff Impact” sub-forum. Any memorable insights?

姚洋: The forum generally believed that U.S. tariffs have little impact on global trade, which was surprising. Perhaps because everyone thinks that tariffs between countries offset each other’s effects.

Secondly, some expressed concern that China’s vigorous development of manufacturing and limited focus on domestic consumption could significantly impact the U.S. and European economies. They subtly raised these worries.

Regarding the development trend of the global trade framework, two contrasting views emerged. Most believe multilateral systems should be preserved, but former U.S. Commerce Secretary Carlos Gutierrez gently suggested that existing multilateral rules are no longer applicable, and the solution should be for China and the U.S. to sit down and communicate.

Personally, I think that although globalization has not ended, multilateral institutions like the WTO are essentially paralyzed. Previously, trade conflicts were negotiated within the WTO framework, and solutions were reached according to rules. Now, this mechanism is hardly functioning.

Reporter: During the sub-forum, you asked Gutierrez two questions (why he opposes strengthening multilateral mechanisms and his view on China-U.S. relations), but he seemed to avoid them intentionally?

姚洋: Before the forum, I had a conversation with him. He said he could answer the question about why he opposes strengthening multilateral mechanisms. But during the forum, other guests emphasized the importance of multilateral systems. He was in the minority and perhaps didn’t want to express more views.

I also wanted to ask other participants about G2 (the China-U.S. group), but ran out of time. Now, the world is paying close attention to G2, and we cannot ignore this issue. In private, Italy’s former Deputy Minister of Economic Development, Michele Gerraci, commented: “The world’s problems now revolve around China and the U.S.”

In this context, China and the U.S. should sit down and discuss some rules. We shouldn’t be afraid of making rules. Currently, the U.S. is undermining rules, and the world is already chaotic enough. China should seize this opportunity to establish rules, compete within a rules-based framework, and gain more friends internationally.

Reporter: Why do EU experts and officials advocate actively promoting multilateral mechanisms?

姚洋: The current U.S. view is that multilateral mechanisms are meaningless to it. Even if they promote multilateral systems, the U.S. wants to reform existing rules. Under this background, the WTO is essentially at a standstill, and global trade has returned to a “jungle era.” Europe cannot effectively counter tariffs alone, so it hopes multilateral mechanisms can play a role.

The “Two Elephants in the Room”

Reporter: The GDP growth target for 2026 has been adjusted to 4.5%–5%. How do you view China’s medium- to long-term economic growth?

姚洋: I think discussing medium- and long-term targets is pointless. I am now a full-fledged Keynesian. Without the present, there is no future. People live in the moment. Long-term issues are irrelevant to ordinary people.

We must confront short-term problems like employment pressure and high real estate vacancy rates. The high vacancy rate and the large number of families unable to repay mortgages each year deserve more attention.

Reporter: How do you assess the current employment situation?

姚洋: A notable phenomenon is that in recent years, the population in major cities has generally declined, with many people moving back to counties. Besides demographic changes, this may also indicate fewer job opportunities in big cities. Although county towns have fewer jobs, their lower living and housing costs make them attractive for people to hold on temporarily.

Reporter: What challenges does domestic consumption face?

姚洋: The key issue is that we ignore the “two elephants in the room”—the ongoing negative growth of the real estate market and the increasing fiscal pressure on local governments, which leads to almost no growth in spending.

Local government expenditure and real estate spending account for about 50% of total domestic expenditure. Ignoring the decline in these areas and instead stimulating other sectors’ consumption makes little difference. We are forcing local governments, enterprises, and individuals to repay debts. If problems worsen, I worry China could become like Japan in the 1990s—everyone is repaying debts, and economic growth is severely hampered.

Reporter: How to resolve debt issues?

姚洋: There are three main ways. The first is the U.S. direct bankruptcy model, which clears debts quickly and restores the economy early. The downside is it causes mass unemployment and social upheaval.

The second is the Japanese model, where everyone gradually repays debts, severely dragging down economic growth.

The third is the “government capital injection” approach China promoted in the 1990s. By injecting capital, triangular debts can circulate, and remaining debts can be converted into equity after separation. Without that debt management phase, China’s rapid growth in the early 2000s would have been impossible after joining the WTO.

Currently, the best approach is to seriously study and implement the third debt resolution model, drawing on the courage of government departments at that time.

The lengthening of payment periods has already challenged many enterprises’ operations. This is not a matter of real economy competition but a financial issue. Therefore, besides promoting “anti-involution,” we must also manage triangular debts and unblock debt repayment channels to get the economy moving. Injecting capital into local governments to facilitate debt repayment chains is also an option.

Reporter: Some experts say this is a pain point in economic transformation?

姚洋: Not really. When discussing macroeconomic issues, we shouldn’t always talk about medium- and long-term or structural problems. Medium- and long-term policies cannot solve short-term difficulties. For example, the market calls for higher welfare to boost consumption, but in reality, the lowest 10% of income earners account for only about 0.6% of total consumption. Doubling their welfare in the short term would have limited impact on the economy.

Can we return to infrastructure-led growth?

姚洋: That’s no longer feasible. Local governments lack the motivation for infrastructure investment. Infrastructure investment even declined in 2025. Ultimately, consumption must drive growth.

In seeking measures to promote consumption, we must broaden our perspective. For example, with ordinary people’s assets shrinking due to falling housing prices, how can we continue to expand their consumption?

The immediate priority is to prevent ordinary citizens’ assets from further devaluation. Total personal assets in China are about 700 trillion yuan, with real estate comprising a large part. A 30% drop in housing prices would wipe out over 100 trillion yuan in household assets. Reducing this loss would significantly support consumption.