In early October, the Chinese leadership issued a document to reaffirm its support for the development of “new quality productive forces”—a term coined by President XI Jinping to stress the necessity of innovations and China’s high-tech developments (see Key Talks in 1992, Court Cases in 2024, and “New Quality Productive Forces”).  Issued at a time when many people in the West have expressed concerns about artificial intelligence (“AI”), this document is clearly an attempt by Chinese leaders to show their unwavering commitment to AI and other innovative developments.

Included in the document is a special message concerning micro, small, and medium-sized enterprises (“MSMEs”) that indicates the Chinese leadership’s dedication to helping these enterprises overcome challenges presented by the current AI era.  In order to grasp the full extent of this dedication, one needs to understand China’s strong opposition to recent characterizations of the Chinese economy as “K-shaped” and the country’s specific measures aimed at helping MSMEs.  Despite these efforts, there are major problems associated with MSMEs that China will need to tackle effectively.

“[…] one needs to understand China’s strong opposition to recent characterizations of the Chinese economy as ‘K-shaped’ […].”

K-Shaped Divergence?

Many commentators outside China have described the Chinese economy as displaying a “K-shaped” divergence.  Their main message is that the upper arm of the letter “K” reflects the continuing growth of new and emerging high-tech industries in China, whereas the lower arm of the “K” depicts the declining trend of the country’s traditional industries.

As the opening arms of the “K” imply that the gap between high-tech industries and traditional industries will continue to widen, this suggests that traditional industries and many ordinary citizens relying on these industries will see increasing economic hardships.  Such a gloomy economic prospect for the People’s Republic of China, which was founded on specific people-oriented ideologies, is unacceptable to the communist party promoting these ideologies.  In other words, if the communist party accepted such “K-shaped” characterizations of the Chinese economy, its governing credibility would be fundamentally undermined.

To reassure observers that China’s current policies on high-tech developments are not implemented at the expense of traditional industries, the People’s Daily, an official newspaper of the Chinese Communist Party (“CCP”), published in September 2026 an article authored by DONG Yu, Executive Vice Dean of the China Institute for Development Planning at Tsinghua University and Vice President of the China Society for the Study of Private Economy.  In the article, Dong noted that commentators using the term “K-shaped divergence” to describe changes in China’s economy are wrong, primarily because they “have underestimated the capacity of traditional industries to undergo a thorough transformation and upgrade”.  He stressed that, with the country’s support, many traditional enterprises in China are leveraging technological innovation to reduce costs, enhance efficiency, and expand markets.

In addition, according to Dong, China can use various tools, including anti-monopoly enforcement as well as policies favorable to small and medium-sized enterprises, to “prevent leading enterprises from leveraging their technological and capital advantages to excessively squeeze [smaller] supporting enterprises”.  Dong concluded his article in this way:

We clearly see that the issues of unbalanced and inadequate development still require persistent effort to resolve.  By unswervingly deepening reform and expanding opening-up—while continuously fostering new quality productive forces, transforming and upgrading traditional industries, ensuring smooth economic circulation, and optimizing income distribution—the fruits of high-quality development will surely benefit all the people in a more extensive and equitable manner.

[emphasis added]

China’s Renewed AI Vow

Less than a month after Dong’s article was published, the CCP’s Central Committee and the State Council issued the Opinions on Developing New Quality Productive Forces to reaffirm their support for the development of AI and other emerging technologies. 

To leave no room for any doubt about China’s AI and other high-tech developments, the document outlines 19 key measures centered on innovations across five areas.  One of the five areas is “the promotion of the deep integration of technological innovation and industrial innovation” by “transforming and upgrading traditional industries”, “cultivating and expanding emerging industries”, “making forward-looking plans for future industries”, and “implementing the ‘Artificial Intelligence +’ Initiatives comprehensively [emphasis added]”.

What stands out in the document are the clear instructions given by the CCP’s Central Committee and the State Council to create a business environment favorable to MSMEs.  Higher education institutions and research institutes are urged to license their scientific and technological achievements to MSMEs under a “use first, pay later” arrangement.  In addition, large enterprises are encouraged to open their supply chains to MSMEs so that, through becoming suppliers of large enterprises, MSMEs will evolve to be “a key force in the industrialization of [technological] research results”.

“What stands out in the document are the clear instructions given by the CCP’s Central Committee and the State Council to create a business environment favorable to [these enterprises].”

Major Problems

These licensing and supply-chain arrangements for MSMEs are just some examples showing how China has taken steps to support these enterprises.  Financial regulatory authorities and banking institutions in China have also offered loan support to these enterprises, especially those in the technology sector.  According to a report released by the People’s Bank of China, by the end of the first quarter of 2026, 303,300 small and medium-sized enterprises in the technology sector had received loan support.  This represents a loan-access rate of 50.4%, an increase of 0.2 percentage points from the end of 2025.

All of these measures are impressive but do not address additional major problems associated with MSMEs: excessive pursuit of flashy products that cannot solve real problems, the solutions to which would generate massive profits to allow the long-term success of these enterprises.  The collapse of a series of enterprises producing lower-end humanoid robots that cannot be used on industrial production lines illustrates these problems.  A good example is the collapse of Suzhou Yixing Robot Co., Ltd. (“Yixing Robot”), a small enterprise whose business operations lasted less than six months, despite support from Geely Holding Group, a major multinational automotive conglomerate in China.  Yixing Robot was able to attract talent from top-tier institutions such as Tsinghua University and secure hundreds of millions in funding just months after its founding.  However, its “Star Wheel 1” robot could only operate for 35 minutes, even though the small enterprise claimed to target the industrial humanoid robot market that is worth hundreds of billions.

A study conducted by Frost & Sullivan reveals that many humanoid robots are like “Star Wheel 1” robot, in terms of their limited functions.  According to the study, among all the humanoid robots sold in the world during the first six months of 2026, less than 6% (i.e., 1,200 humanoid robots) were deployed on production lines or in warehouses to generate direct economic value, with the rest mostly sold to serve as guides or for other purposes such as commercial performances, scientific research, and data collection.

The collapse of Yixing Robot and other enterprises producing lower-end humanoid robots has been welcomed by multiple observers, with one observer referring to the collapse of these enterprises as “bubbles” of the industry being squeezed out to let real problem-solvers—those producing industrial humanoid robots—generate real profits.

The Chinese leadership is aware of similar bubbles prevailing in the Chinese market.  In fact, at the end of the Opinions on Developing New Quality Productive Forces, the CCP’s Central Committee and the State Council warn that when changes are made to industries, those involved in bringing about these changes “must not shift from the real economy to a ‘fictitious’ one […] or foster bubbles” and caution that whoever engages in “blind investment”—thereby “causing significant losses”—will be held strictly accountable.  These warnings will only be effective if they are accompanied by actions with real teeth.

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• The citation of this article is: Dr. Mei Gechlik, China’s Special Message in Its Renewed AI Vow, SINOTALKS.COM^®, SINOTALKS^® In Brief, Oct. 28, 2026, https://sinotalks.com/inbrief/china-renewed-AI-vow.

• The original, English version of this article was edited by Nathan Harpainter.  The information and views set out in this article are the responsibility of the author and do not necessarily reflect the work or views of SINOTALKS^®. ↩︎

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