‘China shock 3.0’ to be driven by AI, biotech and robot exports, economist says

China is on the brink of a "China shock 3.0," driven by exports of artificial intelligence, biotechnology, and robotics, according to Alicia Garcia-Herrero, a senior fellow at Bruegel and chief economist for Asia-Pacific at Natixis. The third wave, which could surpass the current wave, will center on AI hardware and software, biotechnology, and robotics.

China is developing its own AI hardware and software and plans to export them once domestic demand is met, Garcia-Herrero said in an interview with the South China Morning Post. These exports could come with bundled data center and cloud services, and humanoid and industrial robots could follow, creating a shock that would exceed the current one.

China's cheap energy gives it the world's lowest computing costs, extending its competitive strength into services. The term "China shock" was coined by US economists David Autor, David Dorn, and Gordon Hanson, who linked China's import surge after its WTO entry to US manufacturing job losses and factory town declines. The "2.0" wave began around 2018 and has been driven by advanced manufacturing, including cars and machinery.

China accuses its trade surplus of being driven by innovation and reform, not subsidies or weak domestic demand, but it has been on track to beat last year's record trade surplus. Experts debate how to respond to China's trade practices, with some suggesting inviting Chinese investment and others arguing for a more cautious approach.