Xi’s AI ambitions collide with China’s fragile employment market

BEIJING – Days after back-flipping AI humanoids dazzled China with a Chinese New Year performance alongside dancers, a small research company jolted US markets with a stark warning about how automation could trigger an economic spiral by displacing workers.

Intended or not, images of robots swinging nunchucks alongside their human counterparts threw a spotlight on Beijing’s challenge of balancing productivity gains with jobs.

While no Chinese companies were referenced in Citrini Research’s dystopian report, similar risks loom for China – the US’ most formidable artificial intelligence rival and home to the world’s largest labour force.

That is leaving President Xi Jinping with a dilemma.

China cannot afford to hobble itself in the race with Washington for AI capabilities that will underpin advanced manufacturing and technology critical to military advancement.

At the same time, the Communist Party of China needs to ensure enough job creation to prevent social unrest.

“Beijing is aware of the potential for this process to have major societal impacts,” said Mr Paul Triolo, a former US government official and partner at DGA-Albright Stonebridge Group who specialises in China and tech policy.

Officials are also already grappling with high levels of youth unemployment, making another wave of job displacement harder to deal with, he added.

Earlier in 2026, China’s Ministry of Human Resources and Social Security announced it was drafting policy guidance to address AI’s impact on jobs ahead of March’s release of the country’s five-year development plan.

Mr Zhang Yunming, Vice-Minister of Industry and Information Technology, also in January described employment pressures from AI as “inevitable”.

Despite that, the Asian powerhouse has pushed to embed AI across its economy. China installs more factory robots each year than all other countries combined, leads the world in drone delivery and tests more autonomous cars than anywhere else.

Goldman Sachs estimates China will lead the world in adopting autonomous vehicles, with 90 per cent of cars sold there expected to have advanced self-driving capabilities by 2040.

It is not just blue-collar workers at risk. In a recent study, researchers at Peking University analysed more than a million online Chinese job postings between 2018 and 2024 to measure different occupations’ exposure to AI large language models.

They found that sectors with higher exposure – such as accounting, editing, sales and programming – saw larger declines in recruitment.

Illustrating the tension between automation and preserving jobs, Baidu’s launch of robotaxis in 2024 in the central Chinese city of Wuhan sparked concern among taxi drivers about losing their jobs to machines. The company has since expanded its service to at least 22 cities.

The Chinese labour arbitration authorities in 2025 weighed in on the tension, ruling that replacing a worker with AI constitutes a business decision for profit rather than an uncontrollable event.

This means companies are legally required to retrain or reassign workers before terminating them – an early guard rail few other countries have established.

People-centred AI adoption

Beijing has advocated what it calls a “people-centred” approach to adopting AI, partly because the ruling Communist Party derives much of its legitimacy from rising living standards.

An already fragile job market may heighten that sensitivity, with wage protests surging to their highest level since at least 2023, according to the think-tank Freedom House.

The broader economic slowdown, worsened by a prolonged property crisis, has also impacted the labour market. Between 2020 and 2024, China generated about 21 million net new jobs, less than half the number created in the preceding five years, according to the World Bank. Youth unemployment has hovered just above 15 per cent for the past six months.

Still, AI disruption in China could take a different shape.

The Asian country lacks the sort of globally dominant software-as-a-service industries that bore the brunt of the recent AI “scare trade” in US markets, said Professor of Law Angela Zhang at University of Southern California. 

China’s digital economy is organised around large platform ecosystems such as Alibaba, Tencent and ByteDance, which may be somewhat less exposed to that kind of valuation shock.

Despite that, Prof Zhang warned that China faces meaningful risks from AI-driven displacement and may turn to expanding into foreign markets to offset labour and deflationary pressures.

Another scenario is that China’s shrinking population could cushion the blow, as fewer workers enter the market, while its developed education system is well placed to retrain those displaced by AI.

Either way, most analysts agree the transition will be painful. 

“From my study of China on the ground, it was clear that tech advances, at least in the coming years, will reduce jobs, including jobs for the educated,” said Professor of Chinese political economy Yuen Yuen Ang at Johns Hopkins University.

“Simply put, China’s new economy cannot realistically grow fast enough to replace the old one soon,” she added. BLOOMBERG