China's top financial regulator cautioned that a global rush of money into AI could crowd out traditional industries and raise credit risks, prompting calls for new macro‑risk frameworks.
At the Hong Kong Monetary Authority’s Global Financial Leaders’ Summit, Xiao Yuanqi, vice head of China’s National Financial Regulatory Administration, warned that an unprecedented wave of global capital into artificial‑intelligence (AI) ventures is moving too quickly and could destabilise the broader financial system. The regulator highlighted that the surge is crowding out traditional industries by pushing up borrowing costs and increasing credit exposure, prompting calls for targeted macro‑risk policies.
According to Xiao, heavy funding into leading AI firms is expanding at a pace that outstrips the capacity of the real economy to absorb it. The resulting “crowding‑out effect” forces conventional manufacturers and service providers to face higher financing rates, weakening their ability to reinvest in production and growth. The regulator warned that this dynamic could elevate systemic credit risks if left unchecked.
The warning coincided with a broad pullback in AI‑heavy equities throughout the region. In China, the tech‑focused STAR 50 index fell almost 4% on Tuesday, reaching levels not seen since April 2025, while the broader CSI 300 slipped 0.2%. South Korea, Japan and Taiwan also reported notable declines in AI‑related stocks, reflecting heightened investor caution.
Beijing responded by reviving support measures, including expanded stock‑buying facilities and cheaper funding for share buybacks, to shore up market confidence. Xiao urged policymakers to develop specific macro‑economic management frameworks and risk‑prevention tools aimed at monitoring AI‑related capital flows. At the same summit, Vice Premier He Lifeng reaffirmed Hong Kong’s role as a financial hub and pledged to keep the offshore yuan circuit open, while Chief Executive John Lee highlighted the city’s competitiveness in digital assets and green bonds.
Analysts will monitor whether Chinese authorities introduce formal regulations targeting AI investment channels and how such rules might affect cross‑border capital flows. Further data on AI‑sector credit exposure and any subsequent adjustments to sovereign or corporate bond issuance in yuan will also be key indicators of policy impact.
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