China AI investment risks potential financial instability

Former People's Bank of China Governor Zhou Xiaochuan has warned that massive capital flows into artificial intelligence and related infrastructure in China could trigger financial instability if investments fail. During the 2026 Bund Summit, Zhou noted that while AI can enhance productivity, the current surge in data center construction carries significant risks, particularly regarding the actual utilization rates of computing power.

Reports indicate that China plans to invest 4 trillion yuan in computing power networks during the ‘15th Five-Year Plan’ period (2026–2030). However, current utilization rates for AI computing centers and enterprise-grade general computing centers remain low, with some GPU utilization below 30%. This inefficiency poses potential credit risks for financial institutions.

Beyond financial concerns, experts highlight several structural challenges to China's AI expansion. These include the environmental impact of high water consumption in data-center-heavy regions, rising electricity demands—projected to grow by 19% annually through 2030—and the tension between state-led investment and market autonomy. Additionally, the long turnaround time for equity-based returns may not provide the immediate fiscal relief local governments seek as land-based revenues decline.