China AI Watch: More growth, less reflation

AI is becoming a growth pillar for China, led by exports not investment. Without AI-related tailwinds, GDP growth would fall below 4%. We think the most reflationary phase of China's AI-related infrastructure and power buildout is likely behind us, and examine the implications for FX and rates. AI is already providing a meaningful boost to China's growth outlook, but the growth dividend comes primarily through exports rather than domestic investment. Our three-sector analysis suggests that AI is not creating enough jobs in China yet, and we believe the most inflationary phase of China's AI-related infrastructure and power buildout is likely behind us. Stronger AI-related output should eventually reduce the urgency for additional monetary easing without creating a case for PBoC tightening, keeping us supportive of CGBs.