How China plans to fund its quest for AI dominance
Corporate investment, fiscal expenditures, state-owned banks and government-backed venture funds.
China’s state capitalist system is making recourse to multiple forms of both private and government financing to advance its AI development plans this year.
The latest data points to four major sources of financing and investment in China for AI-related “hard technology” in 2025:
Investment by corporate enterprises, led by tech giants such as Alibaba and Tencent.
Fiscal expenditures by the Chinese government.
Indirect financing via China’s state-dominated banking system.
Equity markets and state-backed venture funds.
Corporate investment
China’s leading tech giants, including Alibaba, Tencent, ByteDance and the big three telecoms operators, are expected to invest 490 billion yuan on AI in 2025, for an increase of 179.9 billion yuan compared to last year, according to research led by Zhang Yu (张瑜) from Renmin University.
Alibaba alone will make investments of more than 380 billion yuan in cloud and AI hardware infrastructure over the next three years, for annual expenditures of nearly 130 billion yuan during the period from 2025 - 2027.
This annual amount marks an increase of nearly 70% compared to 2024.
Government spending on AI
Beijing has set aside 1.24 trillion yuan on full-year science and technology spending in its 2025 budget report, for an increase of 95.9 billion yuan compared to 2024.
The Chinese tech hubs of Shenzhen and Hangzhou have also unveiled their own “hard science and tech” industry support plans, with Shenzhen establishing its own 10 billion yuan fund to focus on AI and robotics.
The state-directed banking system
Beijing has made financing for science and technology one its top priorities this year, as indicated by the State Council’s release of the “Guidance Opinions on Effectively Fulfilling the Five Major Chapters of Finance” (关于做好金融“五篇大文章”的指导意见) in March to coincide with the Two Sessions congressional event.
The emphatic signal from Beijing follows ongoing efforts by China’s financial regulators to step up bank lending to small-scale innovative tech enterprises.
Data from the Chinese central bank indicates that as of the end of 2024, outstanding loans to SMEs in China’s tech sector totalled 3.27 trillion yuan, for a year-on-year rise of 21.2%, 14 percentage points ahead of growth in other loans.
Equity investment
In order to better support equity investment in the tech sector, the National Development and Reform Commission (NDRC) is establishing an “aircraft carrier” grade guidance fund.
According to official sources, the purpose of the fund is to “drive nearly one trillion yuan in regional and private capital…to focus on hard science and technology and employ market–based methods to invest in tech enterprises.”
China’s equity markets have been frosty since the pandemic, with investment levels steadily declining across the board. The Chinese tech sector remains a noteworthy exception, however.
Figures from Tsinghua University indicate that Chinese equity investment (including early stage, venture capital and private equity investment) totalled 638.1 billion yuan in 2024, for a YoY decline of 7.9% and the fourth consecutive year of decline.
IT investment ran against the grain of decline, however, with a 30.5% YoY rise to hit 91.5 billion yuan.