Governing the Mind of the Market: A Yuan Intelligence Framework for Financial Stability in the Age of AI—A Chinese Philosophical Contribution to Global Governance

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Abstract

Abstract This paper introduces “Yuan Intelligence,” a governance paradigm rooted in Chinese generative philosophy, as a novel framework for ensuring financial stability in algorithm‑driven markets. It presents this not merely as a regulatory innovation but as a Chinese philosophical contribution to global governance theory in the digital age. A central puzzle in modern finance is why increasingly sophisticated AI‑driven control and regulatory systems coincide with rising systemic fragility rather than enhanced stability—a symptom of the universal control failure of top‑down cybernetic governance when facing the living, emergent “mind of the market.” This paper addresses the paradigm crisis embedded in capital market governance by advancing the Yuan Intelligence theory anchored in core classical texts including the Zhou Yi and foundational Daoist classics, which stands in sharp contrast to the Western “Meta‑intelligence” paradigm of hierarchical control. We establish a Yuan‑Dao‑Shu three‑layer analytical framework to diagnose systemic governance deficits driven by distorted value foundations, rigid rule systems, and alienated technological applications. To strengthen empirical validity, we develop a formal agent‑based model (ABM) with explicit agent calibration protocols, complete reinforcement learning mechanisms for the Meta‑Regulatory Protocol (MRP), and multi‑scenario validation against major historical crises, showing that the dynamic MRP reduces volatility by 35%–48% and accelerates market recovery by 50%–65% during flash‑crash‑type shocks. We conduct a full comparative case study of the 2010 Flash Crash, explicitly mapping the event onto the Market Mental Dashboard and MRP intervention mechanisms to demonstrate explanatory power. We explicitly refute the “Tao of Inaction” critique by clarifying how the Yuan Intelligence system enables active, calibrated intervention rather than passive observation. We also propose a concrete phased roadmap for implementing the National Financial Knowledge Graph to resolve data sovereignty and political economy challenges, with clear stakeholder mapping, authority design for data sharing mandates, and institutional conflict resolution mechanisms. The contribution of this paper is both theoretical and practical: a testable, operational governance blueprint that shifts from external control to endogenous awakening, offering a distinctive Chinese pathway to digital‑era financial stability and fairness. More broadly, this study establishes Yuan Intelligence as a generalizable paradigm for governing complex adaptive systems, with far‑reaching implications for AI‑driven financial innovation regulation, systemic risk governance, and the future of global governance.