Introduction to the AI Competition
The artificial intelligence sector in China has entered a new phase, intensifying the AI competition with the United States. Chinese megacities are launching massive subsidy programs to support their AI industries, while domestic firms aim to reduce their dependence on US technology. The stakes are high, with both nations viewing AI dominance as critical to future economic and strategic power.
Shanghai’s AI Investment
Shanghai has unveiled an ambitious one billion yuan (US$139 million) subsidy program for its artificial intelligence industry. The comprehensive package allocates resources in three key areas: 600 million yuan for computing power subsidies, 300 million yuan for third-party AI model discounts, and 100 million yuan to support companies in procuring training datasets. The program offers subsidy rates ranging from 10% to 100% of contract values for computing facilities, AI models, and datasets.
Shanghai’s Key Advantages
According to Pan Helin, a member of an expert committee under China’s Ministry of Industry and Information Technology, one of Shanghai’s key advantages in AI development is its strong funding. However, Pan noted that Shanghai’s high operating costs often push AI start-ups toward cheaper alternatives like nearby Hangzhou.
Nationwide Competition
Shanghai’s initiative reflects a broader pattern in China, where cities are competing aggressively to establish AI dominance. Hangzhou has emerged as a particular rival, having announced plans last year to distribute 250 million yuan in computing power subsidies while nurturing its "six little dragons" – a collection of well-known Chinese start-ups, including AI player DeepSeek. Other cities, such as Shenzhen, Chengdu, and Beijing, are also introducing similar support measures.
Inter-City Rivalry
The inter-city rivalry extends beyond Shanghai and Hangzhou, with multiple cities introducing support measures to establish themselves as AI hubs. This situation demonstrates how artificial intelligence has become a strategic priority at multiple levels of Chinese government.
US AI Strategy
The timing of Shanghai’s announcement coincides with the Trump administration’s comprehensive AI Action Plan. The plan maintains tight restrictions on key technologies while accelerating deregulation and infrastructure support for US AI companies. Donald Trump described the plan as "a policy of the United States to do whatever it takes to lead the world in artificial intelligence," emphasizing America’s intention to become an "AI export powerhouse" and maintain national security protections.
US Restrictions
The plan tasks the US Commerce Department with closing loopholes in current export restrictions, boosting oversight of end users abroad, and exploring geolocation tools to block access to "countries of concern" like China.
China’s Self-Reliance Strategy
Despite US restrictions, analysts predict significant growth for China’s domestic AI industry. Bernstein analysts forecast that domestic chips will capture 55% of China’s AI accelerator market by 2027, up dramatically from just 17% in 2023. The growth reflects ongoing technological progress, with Chinese companies increasingly matching the performance of downgraded chips sold to China.
Technological Progress
Huawei’s Ascend 910C now reaches approximately 65% of Nvidia’s supreme H100 capacity, though its computing power remains limited by lack of direct compatibility with Nvidia’s CUDA software platform.
Geopolitical Implications
The AI competition between China and the US appears set to intensify further. Premier Li Qiang called for international cooperation to ensure AI does not become an "exclusive game" accessible only to a select few – a clear reference to US restrictions. However, neither US pressure nor Chinese subsidies guarantees clear winners in this technological race.
Future Outlook
"AI isn’t something that can be built overnight through policy support alone – it’s a long game shaped by engineering, talent, and infrastructure," said Bo Zhengyuan of Plenum. With China’s data resources, algorithms, and AI talent remaining competitive with the US despite chip restrictions, the outcome of this technological competition may ultimately depend on which approach – American technological restrictions or Chinese self-reliance investments – proves more effective in driving innovation.
Conclusion
The AI competition between China and the US is heating up, with both nations investing heavily in their respective AI industries. While the US is maintaining tight restrictions on key technologies, China is focusing on self-reliance and domestic development. The outcome of this competition will have significant implications for the future of AI and the global economy.
FAQs
Q: What is the current state of the AI competition between China and the US?
A: The AI competition between China and the US is intensifying, with both nations investing heavily in their respective AI industries.
Q: What is Shanghai’s AI investment program?
A: Shanghai has unveiled a one billion yuan (US$139 million) subsidy program for its artificial intelligence industry, with allocations for computing power subsidies, third-party AI model discounts, and support for companies procuring training datasets.
Q: How is the US responding to China’s AI development?
A: The US is maintaining tight restrictions on key technologies and accelerating deregulation and infrastructure support for US AI companies.
Q: What are the implications of the AI competition for the future of AI and the global economy?
A: The outcome of the AI competition will have significant implications for the future of AI and the global economy, with the potential for significant growth and development in the AI industry.
