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While AI adoption in China may happen faster than expected, our economists think the impact may be front-loaded, and the overall effect could be slightly smaller than previously predicted.
Compared to the US, the Chinese labor market is less prone to AI automation, due to its higher share of physical jobs. For example, agriculture, manufacturing, and construction trades account for about half of all jobs in China, well above their 19% share of total employment in the US. Meanwhile, sectors that are more exposed to AI-driven task automation — such as finance and insurance, and professional and technical services — constitute less than 3% of jobs in China, compared with 14% in the US.
After incorporating more detailed industry-level employment data in China, Goldman Sachs Research nudged down its forecasts for AI’s likely uplift to overall GDP over the next 10 years from 9% to 8%. That’s well below the expected 15% lift in the US.
“Although the total effect after full AI adoption is marginally lower than our previous estimate, the impact over the next few years is likely to be more positive due to the faster adoption timeline,” the team writes.
How much is China investing in AI?
Chinese companies’ ability to improve performance while reducing costs and computing power requirements will continue to boost capital expenditures and investment, according to Goldman Sachs Research analysts. The race to develop AI agents and applications is resulting in higher investment throughout the tech ecosystem in China — including semiconductors, data centers, cloud services, software, and telecommunication companies. Our equity analysts expect China’s four biggest AI model developers to increase their total capex by 38% in 2025.
AI-related spending by tech companies is expected to increase sharply over the next few years as they build up AI infrastructure, platforms, and applications. And as AI applications are developed and mature, the non-tech sector is likely to increase spending to incorporate end-use AI services into regular production later in this decade. Our economists expect total AI-related spending will account for close to 1% of China’s annual GDP in the coming years.Â
How will AI affect China’s labor market?
The main economic impact from generative AI is expected to come from task automation that raises productivity. Our economists point out that implementation of these new technologies will need to be managed carefully, particularly given the current weak state of China’s labor market and persistent deflationary pressures. Some 15% of young people are unemployed, and in recent years more than 10 million students have graduated from colleges annually.
“Amid a severe housing downturn, increased efforts to rein in local government implicit debt, and regulatory tightening in the financial industry, job losses have been reported in the real estate sector, among civil servants, and in the financial sector,” the team writes. “In this environment, job destruction by AI adoption, while raising labor productivity, could exacerbate deflation, erode confidence, and further weaken the economy.”