Exclusive Interview with Yao Yang: The AI Bubble Burst is Inevitable; We Need to Focus More on Short-Term Issues

Questions for AI · What technological breakthroughs could trigger the collapse of the AI bubble?

Reporter Tian Jin

During the Boao Forum for Asia Annual Conference 2026 (hereinafter referred to as “Boao”), the trade war and artificial intelligence (AI) emerged as the two hottest topics.

On one hand, the AI frenzy is sweeping the globe, and for the first time, humanoid robots were introduced at the Boao venue, with four sub-forums dedicated to AI. However, as AI gradually takes root, its potential negative impacts are also drawing significant attention. On the other hand, since 2025, the U.S. has frequently wielded tariffs against major trading partners, with multiple factors impacting global stability and economic recovery. Guests from various countries engaged in intensive discussions on how to respond to the new landscape of global trade.

On March 25, in response to the above two issues, Economic Observer interviewed Yao Yang, Dean of the School of Advanced Finance at Shanghai University of Finance and Economics, at the Boao venue. He stated that AI is a huge bubble, and its burst is only a matter of time. However, if tech companies in Silicon Valley do not want the AI bubble to burst, they must continuously create anxiety and recklessly inflate the bubble; once it bursts, it may trigger a technological crisis.

At the macroeconomic level, Yao Yang believes that rather than focusing on the medium to long-term growth trends of the Chinese economy, we should confront short-term issues such as employment pressures and high real estate vacancy rates. It is especially important to quickly unblock repayment channels to get the economy running. “We should seriously study and implement the debt management model from the 1990s by injecting capital to facilitate the turnover of triangular debts. Implementing this model requires us to possess the courage that government departments had at that time.”

Beware of the AI Bubble

Economic Observer: A major topic at this year’s Boao is AI. Will AI impact employment?

Yao Yang: AI replacing human labor is actually creating anxiety. The replacement of human labor by AI is a long-term process; AI cannot replace a large number of jobs within one or two years. We should conduct on-site investigations into the impacts that AI will have after its implementation. For example, during my research, I found that toy manufacturers began using automated equipment to replace manual sorting of plastic parts in the 1960s, which broadly speaks to AI substituting employment.

Moreover, unemployment caused by macroeconomic fluctuations should not be attributed to AI replacement. Currently, the proportion of companies using AI to replace labor is still very low; compared to unemployment caused by fluctuations in domestic demand, the employment replacement brought about by AI is merely “a light drizzle.”

Economic Observer: What do you think about the global phenomenon of the AI craze?

Yao Yang: AI is being discussed excessively right now; this frenzy is largely fueled by a group of tech companies in Silicon Valley with ulterior motives, and AI is a huge bubble.

NVIDIA’s market value is already very close to Japan’s total GDP for the year (Japan is the fourth largest economy in the world, with an estimated GDP of about $4.43 trillion in 2025). Is this normal? No matter how great a company is, it cannot compare to the GDP created by 120 million people; AI is definitely a huge bubble.

However, if tech companies in Silicon Valley do not want the AI bubble to burst, they can only continue creating anxiety and recklessly inflating the AI bubble.

Economic Observer: Will the next global economic crisis be a technological crisis?

Yao Yang: It will definitely be a technological crisis; the burst of the AI bubble is only a matter of time. The emergence of DeepSeek has poked at the AI bubble, but ultimately, the market has stabilized again.

Next, the opportunity for the AI bubble to burst may come from a technological breakthrough in China, such as China producing photonic chips or optoelectronic integration chips. The information I obtained from enterprises indicates that such technological breakthroughs may take 2-5 years or even longer. Once a technological breakthrough occurs, the collapse of the market value of tech companies in Silicon Valley will trigger a chain reaction.

Economic Observer: How should government departments view the AI craze?

Yao Yang: What government departments need to do most now is to boost domestic demand. I am concerned that the AI craze may cause government departments to overlook short-term issues, bringing more challenges to economic recovery. If we can’t even maintain the short term, discussing the long term is meaningless.

Impact of the Trade War

Economic Observer: You participated in the Boao sub-forum on “The New Global Trade Landscape Under Tariff Impacts.” What were some impressive viewpoints?

Yao Yang: At the forum, it was generally believed that the U.S. tariff increases do not have a significant impact on global trade, which is a surprising phenomenon. This may be because people think that when countries impose tariffs on each other, the effects cancel each other out.

Secondly, some people believe that China’s vigorous development of manufacturing and limited focus on domestic consumption has greatly impacted the economies of the U.S. and Europe, and they subtly expressed some concerns about this.

Regarding the development trend of the global trade framework, two completely different viewpoints emerged at the conference. Most people believe that the multilateral system should be preserved, but former U.S. Secretary of Commerce Carlos Gutierrez subtly suggested that the 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 believe that while globalization has not ended, multilateral institutions like the WTO (World Trade Organization) are basically at a standstill. Previously, trade conflicts were negotiated within the WTO framework, and solutions were formed according to the rules; now, this mechanism is very difficult to operate.

Economic Observer: At the sub-forum, you posed two questions to Gutierrez (why he disagreed with strengthening multilateral mechanisms and how he views China-U.S. relations), but he seemed to be intentionally avoiding them?

Yao Yang: Before the sub-forum began, I communicated with him, and he said he could answer the question about “why he disagreed with strengthening multilateral mechanisms.” However, during the forum, other guests were discussing the importance of multilateral mechanisms, and he was in the minority, which may have led him to be less willing to express his views.

I actually wanted to ask the guests present about their views on G2 (the China-U.S. group), but I was unable to do so due to time constraints. The whole world is now focused on G2, and we cannot avoid this issue. In private discussions, former Italian Deputy Minister of Economic Development Michele Geraci commented, “Now all the world’s problems are centered around the two countries of China and the U.S.”

In this context, China and the U.S. should sit down to discuss some regulatory content. We should not be afraid to establish rules; currently, the U.S. is undermining rules, and the world is already chaotic enough. China should take this opportunity to establish rules and achieve regulated competition while gaining more friends internationally.

Economic Observer: At the forum, why did EU experts and officials propose to actively promote the functioning of multilateral mechanisms?

Yao Yang: The current idea in the U.S. is that multilateral mechanisms are meaningless to it. Even if it promotes multilateral mechanisms, the U.S. wants to reshape the existing rules. In this context, the WTO is basically at a standstill in the trade field, and global trade can be said to have returned to the “jungle era.” Europe itself struggles to withstand the trade war, so it hopes that the multilateral mechanism can function.

“The Two Elephants in the Room”

Economic Observer: 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?

Yao Yang: I believe that discussing medium to long-term targets is meaningless. I am now a thorough “Keynesian.” Without the present, there is no future. People live in the present, and discussing long-term issues has little to do with ordinary people.

We must confront short-term issues such as employment pressures and high real estate vacancy rates. Such a high vacancy rate in real estate, along with the large number of families unable to repay mortgages each year, are issues that deserve more attention.

Economic Observer: How do you assess the current employment situation?

Yao Yang: A noteworthy phenomenon is that the population in major cities has been declining overall in the past two years, with many people returning to rural counties. Aside from changes in population structure, this may also indicate that job opportunities in major cities are decreasing. Although there are not many job opportunities in rural counties either, the cost of living and housing is lower, and this return can help individuals get through a period.

Economic Observer: What challenges does domestic consumption face?

Yao Yang: The key reason for weak consumption is that we are not looking at “the two elephants in the room” — the real estate market is in sustained negative growth, and local governments are under increasing financial pressure, leading to almost no growth in expenditures.

Local government spending and real estate spending account for about 50% of total domestic spending. Therefore, if we ignore the decline in these two areas of spending and instead stimulate consumption in other sectors, it will be difficult to achieve significant results. We are currently forcing local governments, enterprises, and individuals to repay debts; if this issue continues to evolve, I fear China will become like Japan in the 1990s — everyone is in debt, and economic growth is severely hampered.

Economic Observer: How can debt be resolved?

Yao Yang: There are three main ways to resolve debt. The first is the direct bankruptcy model in the U.S., which has the advantage of quick debt clearance and early economic recovery; the downside is that it will cause massive unemployment and trigger significant social upheaval.

The second is the Japanese model, where everyone is in a gradual debt repayment process, leading to severe hampering of economic growth.

The third is the “government capital injection concept” promoted by China in the 1990s. By injecting capital to facilitate the turnover of triangular debts, the remaining debts can be handled through debt-to-equity swaps and other measures after separation. Without that round of debt management, it would have been very difficult for China to achieve the high-speed growth of the first decade of this century after joining the WTO.

Economic Observer: Which debt resolution model should be adopted domestically at present?

Yao Yang: We should seriously study and implement the third model of debt resolution, and we need to learn from the courage of government departments at that time.

Constantly extending payment periods has already posed challenges to the operations of many enterprises. This is not a problem of competition in the real economy, but a financial issue. Therefore, in addition to promoting “de-involution,” it is crucial to manage triangular debts, unblock repayment channels, and get the economy running. We can inject capital into local governments to get the debt repayment chain moving.

Economic Observer: Some experts believe this is a painful transition during economic transformation?

Yao Yang: It is not. When discussing macroeconomic issues, we cannot always talk about medium to long-term structural issues; medium to long-term policies cannot resolve short-term dilemmas. For example, the market calls for increasing welfare levels to address insufficient consumption, but the reality is that the lowest 10% of income earners account for only about 0.6% of total consumption. Even if their welfare levels doubled in the short term, the stimulative effect on the economy would be very limited.

Economic Observer: Can we return to the model of infrastructure investment driving economic growth?

Yao Yang: We cannot go back. Local governments currently lack the motivation for infrastructure investment, and infrastructure investment also saw negative growth in 2025. Ultimately, it will rely on consumption to drive economic growth.

In seeking consumption-boosting measures, our vision cannot be too narrow. For instance, against the backdrop of ordinary people’s assets shrinking due to falling house prices, how can we expect them to continue expanding their consumption?

The urgent task is to ensure that ordinary people’s assets do not continue to depreciate. Nationally, personal assets amount to about 700 trillion yuan, with real estate accounting for a significant portion. A 30% drop in house prices means that residents’ assets would evaporate by over a trillion yuan; if we can reduce this loss, the support for consumption will be very significant.