China's role in the AI-led industrial revolution

industrial revolutions have occurred only in advanced economies operating under democratic capitalist systems.

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With the world's highest per capita GDP and correspondingly high labor costs, the US generates strong demand for automation across all sectors, including in research and development itself. It is these macro fundamentals that have underpinned such strong performance in US AI stocks.

By contrast, China's economy has been trapped in a vicious cycle of weak demand, overcapacity, high unemployment, and persistent deflation, which is fundamentally incompatible with any industrial revolution. AI-led automation offers no remedy for such problems, which are rooted in the country's institutional foundations. The massive government borrowing used to finance China's bid for AI and chip dominance has only deepened concerns about its already severe debt burden and chronic soft budget constraints—problems reminiscent of what the Soviet Union faced during the Cold War arms race.