Squeezed by Three Current Waves: A Kondratiev Depression, China's Technological Substitution, and AI

A speck of dust from the times becomes a mountain when it lands on an individual’s head. And now the mountains of our times are moving.

At present, there are three major trends globally and across China, each with its own subsidiary trends. Different people are swept into different currents, their fortunes rising and falling. The joys and sorrows of people’s economic experience are not shared.

First, the Kondratiev Depression Phase

The typical features of a Kondratiev depression phase are declining total factor productivity; excess capacity; debt pressure; a buildup of dammed-up liquidity; monetary policy dilemmas; limited room for growth and limited dividends from the times; and speculative bubbles around futuristic technologies.

From 2021 to 2025, the United States and Japan faced the threat of stagflation, Europe experienced recession, China experienced deflation, the United States raised interest rates, and the yen remained under pressure. Gold and precious metal prices continued to rise, developments in the Middle East drove up oil prices, and the major economies faced the threat of imported inflation.

The script has many similarities to that of the 1970s during the previous Kondratiev cycle. Of course, there are also many differences.

Kondratiev cycle theory describes broad macroeconomic trends and remains useful in practice.

Macroeconomic judgments are neither precise nor omniscient. They identify broad trends that give us a point of reference and help us stay levelheaded.

Beginning in 2022, China’s property market underwent a correction, dragging countless industries and families along with it.

The era of dividends and easy conditions has passed. The era of the squeeze has arrived.

Second, China’s Technological Substitution

High-tech products account for an ever-growing share of China’s exports, its semiconductor industry is improving in both quality and quantity, its new energy vehicle industry is expanding rapidly, and its large AI models are flourishing. No one can deny the boom in China’s technological substitution. Its enormous industrial system and talent pool bring intense, concentrated force to breakthroughs in individual areas. For generations, people in China and abroad questioned China’s “system” and its capacity for research, development, and technological innovation—a modern industrial version of the Needham Question. Amid this sweeping expansion, that question has quietly come to an end. Zhuangzi: “The great Way is not named; great argument needs no words.” Chinese manufacturing has already become a presence that makes Europe, the United States, and Japan feel pressured. Many industries and exports in the United States, Japan, Germany, and France have been hit hard.

Behind all this are university graduates and engineers working long hours. Over the next 15 years, China will continue to see a sustained peak in university graduates, with more than 10 million graduating each year. The engineer dividend will continue, and the trend of China’s technological rise and substitution is unstoppable.

But not every university graduate can enter the intense competition in leading high-tech industries. Many more face the Kondratiev depression, adding to their anguish and uncertainty. What they experience is a Cthulhu of involution.

Global demand is weak, but supply is growing, making price wars and trade wars a central theme. Yet the pressure of stagflation also calls for cheap goods to suppress deflation, creating a policy dilemma for European countries and the United States.

“It’s Not Industrial Upgrading, but the Downgrading of Global Industry”: China’s much-criticized K–12 and higher education systems have achieved a “success” that no one anticipated; “Demographics: The University Graduate Dividend and Engineer Dividend Are Only Just Beginning”; “The Fundamental Contradiction Facing University Graduates”; “A Common Form of Confusion Among University Graduates: Existential Crisis”

Third, the AI Boom

In 2012, AlexNet excelled in the ImageNet classification competition, ushering in the era of engineering applications for deep learning. In 2016, AlphaGo defeated Lee Sedol, bringing deep learning into mainstream view and making AI a hot topic. In November 2022, ChatGPT launched, stunning the public and bringing large language models, or LLMs, into mainstream view. In November 2025, Claude Opus 4.5 launched with a qualitative leap in coding ability, taking us from the chatbot era into the agent era. There are bubbles surrounding the AI economy, but technologically, the capabilities of large models are still evolving.

Major American tech companies are making capital expenditures on the scale of hundreds of billions of dollars. Large-model companies in the United States and China command valuations in the hundreds of billions of dollars. Computer science graduates from elite universities earn astonishing salaries. New technical approaches emerge one after another, while rising memory prices affect mobile phone sales. The AI boom has everyone’s attention. The Chinese and American stock markets have also eagerly welcomed their Holy Grail. The bull market in tech stocks driven by the AI boom has sent countless retail investors rushing back as the bulls return, and countless stock-market gurus have reclaimed their thrones.

Anxiety about being replaced, left behind, or crushed by large models is spreading among white-collar and highly paid professionals in programming, design, media, law, finance, and many other industries. Intelligence is becoming an industrially manufactured product, while the ability of agentic engineering to execute tasks keeps improving, disrupting the entire market for “mental labor.”

In theory, new technologies create new kinds of employment opportunities. But against the backdrop of a Kondratiev depression and the engineer dividend, people feel a chill rather than optimism. The petty bourgeoisie as a class is already being battered by history and the Kondratiev cycle. “Our Generation May Have Seen the Peak of the Petty Bourgeoisie”: University education has now become widespread in China, Iran, India, Indonesia, and other Third World countries. The consequences of the university graduate dividend are visible in China. The direct consequence of involution among university graduates is a crushing force bearing down on developed countries, advanced industries, and developing countries. A secondary consequence is that the space on which the global petty bourgeoisie depends for its survival—that is, monopoly dividends—is steadily shrinking.

IV. Demand Stagnates While Supply Surges

Marx’s basic principles are still at work.

“Capitalism Cannot Exploit Machines or AI; It Must Always Exploit Human Beings”: The value of a commodity is congealed, undifferentiated human labor, rather than its material form or use value. Air has immense use value for human beings, but it is free.

“The Real Key to Long Economic Cycles: The Purchasing Power of the Middle and Lower Classes”: The root of economic crises lies in the contradiction between “the socialization of production and private ownership of the means of production.” The principal contradiction in long economic cycles should lie on the consumption side and in the distribution of gains among classes, rather than on the production or technology side.

V. Human Joys and Sorrows Are Not Shared

The earlier article “Zhuangzi’s ‘Discussion on Making All Things Equal’: The Tower of Babel of Karmic Obstructions”: People are trapped within their own lives. Everyone is an enemy to everyone else. The “enemy” of these generations is abstract and invisible: the entire cyberpunk world.

In turbulent times, as with Epicurus in the late Greek period and Zhuangzi in the Warring States period, ordinary people have a greater need for the help of a philosophy of the inner life. Zhuangzi: “Life has a limit, but knowledge has none. To pursue the limitless with the limited is perilous indeed.”

Understanding broad trends and the wider environment helps people better understand this thing called “effort.” “Effort Is a False Concept: The Moment You Force It, You Go Astray—Let Things Follow Their Natural Course”

We have no choice but to pursue capability, but we need to make acceptance of our limitations and ordinariness our strategic fallback.

We have no choice but to pursue growth, but people whose minds are free of attachments, who follow the course of things and practice non-action, can adapt to change more easily than those who are anxious or avoidant.

We have no choice but to pursue money, but it is important not to become obsessed with it.