Xi heads to Washington with AI gains but a deepening economic crisis

As Chinese President Xi Jinping prepares to arrive in Washington on September 24 for his first White House visit in over a decade, the trip is being framed by a stark contradiction: China's rapid advances in artificial intelligence stand against the backdrop of an economy in its worst condition in decades.nytimes+1

The state visit, formally arranged during President Donald Trump's trip to Beijing in May, will include high-stakes discussions on trade, AI and Iran, with Xi expected to travel with a large business delegation that may include executives from BYD, CATL Contemporary Amperex Technology Co., Limited and Xiaomi.reuters

AI Rivalry Narrows

Recent assessments from American publications have declared the U.S. lead over China in AI "all but gone," a narrative Xi will be pleased to have in the air during his visit, as Li Yuan wrote in the New York Times ↗ 0.39%. Chinese AI models, including Moonshot AI's Kimi K3, have in some tests matched or surpassed leading American models at a fraction of the cost. The performance gap between the best Chinese and U.S. AI models shrank from 9.3 percent in 2024 to 1.7 percent by early 2025, according to a Brookings Institution analysis.dw+2

China has announced plans to spend roughly $295 billion over five years to build out AI data centers, and its government has placed AI at the center of its industrial policy.nacdonline

An Economy Running "Too Cold"

Yet Chinese economists — even those closest to the state — have openly warned that the government is pouring too many resources into technology that creates relatively few jobs while neglecting broader consumer demand. Li Daokui, a former adviser to China's central bank and a Tsinghua University professor, said this summer that the economy was "running too cold" and that booming high-tech sectors could not lift the larger base.nytimes

The numbers bear out that warning. Youth unemployment, excluding students, climbed to 18.9 percent in August, its highest level since the current methodology was adopted in 2024, according to China's National Bureau of Statistics. Domestic car sales fell roughly 20 percent in the first half of the year, per the China Passenger Car Association. Housing sales continued a yearslong decline. And retail sales contracted outright in May for the first time since the COVID-era lockdowns.tradingeconomics+5

A Difficult Balancing Act

The visit arrives as both governments navigate the AI rivalry's geopolitical stakes. The U.S. and China held their first dedicated AI safety talks of Trump's second term in mid-September, led by Treasury Secretary Scott Bessent on the American side. Meanwhile, Beijing has pushed back on Washington's calls to slow AI development, viewing them as an attempt to lock in American advantage.bluevirginia+1

For Xi, the challenge will be projecting technological strength while managing an economy where deflation persists and consumers have pulled back. Liu Shijin, another former central bank adviser, proposed at a June forum raising rural pension payouts from $30 to $150 per month to shore up demand — a measure of how urgently economists view the consumer crisis.nytimes