Currency Easing, Economy Still Weak – AI Frenzy and the Vicious Cycle of the State-Controlled System

On March 5, 2023, CCP leaders attended the opening session of the National People's Congress.

[People News] During the Chinese Communist Party’s (CCP) annual Two Sessions meeting in March, the government set a GDP growth target of 5% for the year and announced a series of economic stimulus plans to stabilize and revive the economy. The state media celebrated as if economic weakness was already a thing of the past and recovery was imminent. However, contradicting this optimism, the People’s Bank of China (PBOC) released financial data for February on March 14, revealing that China’s economy is still weakening.

On the same day, Premier Li Qiang presided over the eighth plenary session of the State Council, outlining key policy tasks for 2025. His top priority was implementing a special initiative to boost consumption. In this year’s government work report from the Two Sessions, the word “consumption” appeared more frequently than “technology,” indicating the CCP’s deep concern over weak domestic demand. However, the measures proposed to boost consumption are either superficial—such as trade-in programs and childcare subsidies—or outright counterproductive. This is evident in the February social financing data.

The PBOC reported that the total stock of social financing in February reached 417.29 trillion yuan, up 8.2% year-on-year, with an acceleration of 0.2 percentage points from the previous month. The incremental social financing for February was 2.24 trillion yuan, an increase of 741.6 billion yuan year-on-year. While these numbers may seem somewhat positive at first glance, a closer look reveals major issues.

In February 2025, the net financing from government bonds was 16.97 trillion yuan, an increase of approximately 1.1 trillion yuan year-on-year. By comparison, in February 2024, net financing from government bonds was 6.01 trillion yuan, an increase of 10.96 trillion yuan year-on-year. This means that the surge in social financing this February was entirely driven by government bond issuance rather than increased borrowing by businesses and households for investment or consumption. Financial institutions were directed to purchase government bonds en masse rather than lending to private enterprises or consumers. Business bond financing only increased by 279 billion yuan, which is insignificant compared to government bond financing.

This is unsurprising, given that the CCP had already planned to set its fiscal deficit ratio at 4% this year. The government’s early issuance of bonds is primarily aimed at boosting political performance by achieving its fiscal deficit target. Local governments are also front-loading their special bond issuances and addressing hidden debts. According to the economic directives from the Two Sessions, this year’s focus is on high-tech initiatives such as the “AI+” campaign, advanced manufacturing, and innovation talent development. Furthermore, China must brace for potential tariff wars with Trump, which means it cannot afford to exhaust all stimulus measures at once, keeping some reserves in case of contingencies. Given this scenario, there is little funding left to stimulate consumption and boost domestic demand. Both the market and the public recognize this reality. No matter how much the government promotes consumption, people are choosing to hold onto their money rather than spend or take on debt.

The lending data further illustrates market sentiment and consumer behavior. In February, household loans decreased by 389.1 billion yuan, which was a smaller decline compared to the same period last year (a 201.6 billion yuan reduction). Short-term consumer loans and medium-to-long-term loans dropped by 274.1 billion yuan and 115 billion yuan, respectively. The short-term loan decline was less severe than last year by 212.7 billion yuan, but the medium-to-long-term loan contraction worsened by 11.2 billion yuan.

This indicates that the real estate market remains sluggish. Despite Premier Li Qiang’s call to stabilize the property and stock markets and the government launching various policies such as urban village redevelopment, renovation of old housing, refinancing for affordable housing, lifting purchase restrictions, and ensuring housing completion, the real estate sector has yet to rebound. The central government’s 2025 “Document No.1” explicitly prohibits urban residents from purchasing rural homes and farmland and prevents retired officials from acquiring land in rural areas for housing construction.

According to the China Real Estate Association, the top 100 real estate firms reported total sales of 188.12 billion yuan in February 2025, marking a mere 1.2% year-on-year increase but a 17.3% decline from the previous month. The supply of new commercial housing in 30 key cities fell to 3.01 million square meters, down 23% year-on-year and 49% month-on-month, reflecting persistently weak demand.

The decline in short-term loans further highlights weak consumer spending. The muted atmosphere during this year’s Lunar New Year celebrations reflected the economic downturn. During the Spring Festival travel season, high-speed trains were nearly empty while passengers crowded into cheaper “green-skin” trains, prioritizing cost savings. Many people avoided sending digital red envelopes or giving out monetary gifts altogether. Young people, exhausted from “competing in hardship” (struggling with work, housing, and economic pressures), have now shifted to “competing in poverty.” After downgrading their consumption habits, many have resorted to extreme frugality, such as eating only two meals a day or reusing instant noodle seasoning packets multiple times. This is a level beyond mere cost-cutting—it reflects widespread disillusionment.

The government’s so-called initiatives to boost consumption and stimulate demand amount to little more than empty rhetoric. According to Hong Kong media reports, Morgan Stanley’s Chief China Economist, Xing Ziqiang, noted in a recent report that China’s economic policies remain moderate and largely supply-side oriented. The recently concluded National People’s Congress and Chinese People’s Political Consultative Conference announced a 2-trillion-yuan fiscal expansion, yet only about one-quarter of this amount is allocated to consumption-related initiatives. Instead, the government is focusing on technological innovation. The report further predicts that with tariff shocks, a weakening property sector, and persistent low inflation, China’s economic growth will likely slow further from the second quarter onward, with nominal GDP growth potentially falling below 4%.

The Wall Street Journal reported on March 10 that data released by China's National Bureau of Statistics on Sunday revealed a 0.7% year-on-year decline in the Consumer Price Index (CPI) for February, following a 0.5% increase in January. Economists surveyed by The Wall Street Journal had previously anticipated a 0.5% drop in February's CPI. Additionally, the data showed that the Producer Price Index (PPI) for industrial producers fell by 2.2% year-on-year in February, compared to a 2.3% decline in January, marking over two consecutive years in negative territory. Economists had expected a 2.1% year-on-year decrease in February's PPI. The article emphasized that persuading cautious Chinese households to spend is a significant challenge. Furthermore, export data indicated that from January to February, exports increased by 2.3% year-on-year, which is considerably lower than the 4.5% growth forecasted by a survey of economists conducted by The Wall Street Journal. This suggests that Trump's tariff policies are starting to have an impact.

It is indeed puzzling that the Chinese Communist Party (CCP), despite holding a losing hand, continues to act like a holy warrior at this critical moment. A recent report from Bloomberg indicates that the negotiation teams from China and the United States have completely fallen apart. A spokesperson for the Chinese Ministry of Foreign Affairs has also firmly stated that they will fight the U.S. 'to the end.' On March 14, Guo Chunli (郭春麗), the deputy director of the Macroeconomic Research Institute of the National Development and Reform Commission of China, remarked at a news tea gathering organized by the China Journalists Association that the share of U.S. trade in China's total import and export trade during the first 11 months of last year has decreased to 11.2%. The U.S. has imposed tariffs on Chinese products, and in response, China has implemented countermeasures, which have had minimal impact on the Chinese economy. He emphasized that China's fiscal policy has sufficient room to address external shocks and pressures.

Why does the CCP seem so 'confident'? This likely stems from the CCP's deep-rooted arrogance and ignorance, which aligns with systemic issues such as the advancement of state-owned enterprises at the expense of private ones, and the prioritization of politics over economics. It is also connected to Xi Jinping's (習近平) miscalculation regarding the 'rise of the East and the decline of the West' and his grand vision of competing for global leadership with the United States.

The unexpected emergence of DEEPSEEK appears to have energized the CCP, which believes it can compete with the U.S. in the AI sector. The China Manufacturing 2025 initiative has reportedly achieved 86% of its targets, leading the CCP to feel that it is transitioning from a major manufacturing nation to a manufacturing powerhouse, while the U.S. is becoming a hollow manufacturing country. The CCP is now focusing on making significant advancements in the AI industry, aiming to dominate the high-tech sector. This year's Two Sessions can be viewed, to some extent, as a celebration of AI.

Recently, Chinese universities have enthusiastically embraced the trend of promoting artificial intelligence and innovative technologies. A report by The Paper reveals that several 'Double First Class' universities—those recognized for their world-class status and first-class disciplines—have announced plans to expand their undergraduate enrollment this year, with a focus on nurturing advanced talents in fields like AI that align with 'national strategic needs.' Not only are prestigious institutions such as Peking University and Tsinghua University increasing their AI-related admissions, but Fudan University, which traditionally emphasizes the humanities, has also declared a significant disciplinary overhaul.

According to the report, Fudan University, celebrated for its strengths in the humanities, will initiate a comprehensive reform dubbed 'Education and Teaching 3.0' in celebration of its 120th anniversary. This reform will involve a substantial reconfiguration of its academic disciplines, establishing a new educational framework driven by four key areas: humanities, science, medicine, and engineering. The goal is to facilitate a complete upgrade of the academic development model. Jin Li, an academician of the Chinese Academy of Sciences and president of Fudan University, noted that the reform will concentrate on sectors such as integrated circuits, intelligent robotics, and advanced manufacturing, leading to the division of the engineering school into six innovative colleges. The 'new engineering' approach will stress the transition from basic research '0' to practical application, with Jin Li stating, 'Previously, Fudan focused on going from 0 to 1; now we aim to go from 0 to 10.' He also mentioned that the proportion of humanities students will be reduced from the current 30% to 40% down to 20%. This announcement has sparked considerable discussion, with netizens expressing concern that this move reflects a self-destructive attitude towards the humanities at Fudan.

Since its establishment, the Communist Party of China has regarded higher education institutions as the frontline of communist ideology and a bastion for public opinion. In the 1950s, a significant overhaul of academic disciplines was implemented, resetting the professional and disciplinary frameworks of century-old schools from the Republic of China to zero, and reforming them all according to the brainwashing education model of the Soviet Union. Following this, during the Anti-Rightist Movement and the Cultural Revolution, intellectuals faced severe repression and were systematically purged. In the 1990s, the expansion of university enrollment transformed elite education into mass education, and while this generated substantial profits, the education system—especially in higher education—was conditioned to align with the Party's directives, producing knowledge-rich yet mindless 'little pinks' in a red dream factory. Universities became increasingly administrative and power-driven, with academic corruption and moral decay becoming rampant within the ivory tower. Professors and experts turned into mouthpieces for Party culture, executing the Party's will and acting as the cultural enforcers to uphold the Party's rule. This represents a tragedy for the Chinese people and a misfortune for education itself.

Since Xi Jinping took office, particularly over the last decade, the scope of adjustments to university disciplines and majors has expanded significantly. In terms of the number of programs eliminated, design-related departments have been the most affected, followed by business administration, electronic information, and public administration. The significant reduction in liberal arts departments indicates a major retreat in the humanities, while a substantial leap in science and engineering disciplines suggests that scientism, rather than the true spirit of science, has taken precedence in Chinese education. Today, as the wave of AI sweeps through, the humanities are once again being marginalized, reflecting the Communist Party's ambitious and fervent desire to secure a dominant position in global technological competition.

However, the absurdity lies in whether this national system's technological leap can genuinely revive the economy. This year, the number of university graduates has reached a record 12.22 million, which is expected to push the youth unemployment rate to unprecedented heights. The Chinese Communist Party (Zhongguo Gongchandang) embodies a unique entity that is perpetually plagued by irreconcilable conflicts. The more it leans on a national system, the more state-owned enterprises will thrive while private enterprises will decline. This leads to greater societal division and political instability, further alienating it from the international community in geopolitical terms. As the dividends of globalization diminish and nearly vanish, the realms of economy, politics, and diplomacy are destined to enter an irreversible cycle of stagnation. 

(Originally published by People News)