China’s demise was gleefully predicted by the west – meanwhile, it built an AI revolution | Larry Elliott
Source: Guardian Econ ↗
China’s economic ascent, long forecasted to end in crisis, has instead entered a new phase as it challenges the United States in artificial‑intelligence development. The latest illustration of this shift came in July when Moonshot, a Chinese startup, launched its Kimi K3 model, a free AI system touted as comparable to OpenAI’s latest ChatGPT versions. Demand surged so quickly that the company halted new subscriptions after just two days, citing insufficient computing capacity. Analysts such as Edoardo Campanella of UniCredit see the move as part of a deliberate Beijing strategy to stay at the technological frontier, disseminate Chinese AI models worldwide and shape international standards, a plan that could generate a “third China shock” affecting both the global economy and the balance of power.
The emergence of free, high‑quality Chinese AI models threatens the investment‑driven U.S. tech model that has underpinned Wall Street’s confidence in AI‑related growth. Until now, American dominance in AI has justified massive capital inflows and inflated tech share prices, even as oil prices rose. If China can produce comparable models at lower cost and offer them for free, investors may question whether the lofty valuations of U.S. AI firms are justified, potentially deflating the market bubble that has been buoyed by expectations of AI‑driven economic transformation. The situation also underscores criticism that China’s growth relies heavily on export‑driven production, a point highlighted at the recent G20 finance ministers’ meeting where Beijing faced censure for not boosting domestic demand.
China’s AI push offers a cautionary blueprint for nations like Britain seeking to revive manufacturing. When China began its industrial rise half a century ago, it embraced a clear, state‑directed plan, selecting strategic winners and employing a full suite of policy tools—subsidies, tariffs, exchange controls—without succumbing to speculative volatility. The current AI race suggests that similar decisive, coordinated action could help Britain re‑industrialise, while also illustrating how China’s broader “China 3.0” phase—spanning solar panels, batteries, electric vehicles and now AI—has reshaped global supply chains and heightened geopolitical competition, particularly with the United States.
⚡ Effects Interpreter
🌍World Economymedium impact
What this means for you
- ▶A story like this rarely stays local for long in a connected economy.
- ▶Economies far from the headline can still catch the aftershocks.
🏙️Local Economylow impact
What this means for you
- ▶Local suppliers who import goods might pass on any change in costs.
- ▶Your local economy has a way of catching these currents eventually.
🏦Rates & Banksmedium impact
What this means for you
- ▶A change in the cost of money, if it comes, will likely arrive subtly.
- ▶Savings rates can lag behind news like this by weeks, not days.
❤️Healthmedium impact
What this means for you
- ▶A short walk or a chat with a friend can do wonders when headlines feel heavy.
- ▶Support networks, formal or informal, tend to matter most in moments like this.
💷Wealthmedium impact
What this means for you
- ▶Financial plans built on solid ground rarely need urgent revisiting here.
- ▶Nest eggs can wobble briefly before finding their footing again.
🏠Housinglow impact
What this means for you
- ▶Any effect on bricks and mortar is likely to be slow and modest.
- ▶Asking prices in the area could firm up or soften only gradually.
🌍 Effects for your country
The U.S.'s central bank rate currently stands at 3.75%, so a global rates move like this could feed through to local borrowing costs. The U.S.'s economy is growing at 2.3% with inflation at 3.2%, the backdrop this story's effects play out against locally. Housing-market effects like this are usually felt most where mortgage rates track the U.S.'s own central bank rate closely. With the U.S.'s unemployment at 4.4%, personal-finance effects like this land on a labour market that is currently fairly stable. Health-system effects are harder to localise from economic indicators alone — the real impact in the U.S. depends more on local healthcare capacity than the figures above.
The UK's central bank rate currently stands at 3.75%, so a global rates move like this could feed through to local borrowing costs. The UK's economy is growing at 0.8% with inflation at 3.2%, the backdrop this story's effects play out against locally. Housing-market effects like this are usually felt most where mortgage rates track the UK's own central bank rate closely. With the UK's unemployment at 5.6%, personal-finance effects like this land on a labour market that is currently fairly stable. Health-system effects are harder to localise from economic indicators alone — the real impact in the UK depends more on local healthcare capacity than the figures above.
France's central bank rate currently stands at 2%, so a global rates move like this could feed through to local borrowing costs. France's economy is growing at 0.9% with inflation at 1.8%, the backdrop this story's effects play out against locally. Housing-market effects like this are usually felt most where mortgage rates track France's own central bank rate closely. With France's unemployment at 7.9%, personal-finance effects like this land on a labour market that is already under strain. Health-system effects are harder to localise from economic indicators alone — the real impact in France depends more on local healthcare capacity than the figures above.
Romania's central bank rate currently stands at 6.5%, so a global rates move like this could feed through to local borrowing costs. Romania's economy is growing at 0.7% with inflation at 7.8%, the backdrop this story's effects play out against locally. Housing-market effects like this are usually felt most where mortgage rates track Romania's own central bank rate closely. With Romania's unemployment at 6%, personal-finance effects like this land on a labour market that is currently fairly stable. Health-system effects are harder to localise from economic indicators alone — the real impact in Romania depends more on local healthcare capacity than the figures above.
The UAE's central bank rate currently stands at 3.65%, so a global rates move like this could feed through to local borrowing costs. The UAE's economy is growing at 3.1% with inflation at 2.5%, the backdrop this story's effects play out against locally. Housing-market effects like this are usually felt most where mortgage rates track the UAE's own central bank rate closely. Health-system effects are harder to localise from economic indicators alone — the real impact in the UAE depends more on local healthcare capacity than the figures above.