(June 27): Several advisers to the Chinese government are calling on officials to fix the growing divergence within the economy as artificial intelligence (AI) pushes high-tech sectors to outperform, while domestic consumer spending languishes.
A handful of former and current advisers urged authorities to correct the imbalance between strong production and weak demand, at an event held by the Beijing-based think tank China Macroeconomy Forum on Saturday.
The comments came after economic growth slowed significantly in the second quarter, with retail sales and investment falling at a pace unseen since the pandemic.
In veiled reference to China’s deflationary pressures stemming from the imbalance, Huang Haizhou, an adviser to the central bank, said it is “impossible for a country trapped in deflation to achieve technology innovation”. Contrasting Japan and South Korea, he pointed out the former failed to foster cutting-edge AI firms after decades of deflation, while the latter now boasts chip giants like SK Hynix.
“We must adjust the macroeconomic environment to have mild inflation, where the producer price index is positive and companies are making profits,” Huang said. “Only in this way, we can be stronger and go further in technology advancement.”
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China’s economic growth became more K-shaped this year as a global supercycle in AI investment fuelled rapid exports and industrial production, whereas consumer confidence weakened. The widening divergence between sectors benefitting from higher oil and chip prices and other industries is seen in a range of official statistics including industrial profits and inflation.
The current inflation uptick is largely driven by higher costs, rather than a broad reflation fueled by better demand, according to a slide shown by Huang.
“We need to publicly discuss and explore how to share the gains in AI and related industries in society in order to prevent the excessive concentration of technological dividend,” said Liu Qing, an economics professor at the Renmin University of China who has advised the Ministry of Industry and Information Technology in the past.
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“Such discussions have already happened internationally, but are still largely non-existent in China,” he added.
China’s economic growth could slow to around 4.5% to 4.7% in the first half of the year, after an expansion of 5% in the first quarter, according to Liu. That should increase the urgency for policymakers to stabilise growth, he said. Economists polled by Bloomberg predict growth will slip to 4.6% in the second quarter from a year earlier.
Liu Shijin, a former adviser to the central bank, called on the government to ensure more than half of its economic stimulus is used to address the supply-demand imbalance, with a focus of improving social benefits for lower-income groups.
He repeated a call to boost the payout of a basic pension — which covers rural residents and unemployed urban residents — to 1,000 yuan (US$147 or $191) a month from the current level of just over 200 yuan.
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