China’s artificial intelligence sector has joined a new phase of strengthening AI competition with the US as China’s megaloquy launches a massive grant program. At the same time, domestic companies hope to reduce US reliance on technology. Interests go far beyond the technological advantage, and both countries consider the control of AI to be important for future economic and strategic powers.
Shanghai’s USD 139 million AI investment gambit
Shanghai announced an ambitious 1 billion yuan (US$139 million) grant program for the artificial intelligence industry, marking the latest in the technology race as major Chinese cities engage in fierce AI competition.
The comprehensive package allocates resources in three important areas: 600 million yuan for power subsidy computing, 300 million yuan for third-party AI model discounts, and 100 million yuan for training data sets.
The program offers grant rates ranging from 10% to 100% of the contract value of computing facilities, AI models and datasets, according to documents released by the Shanghai Municipal Economic and Information Technology Commission. The city will provide up to 500 million yuan to the new AI research institute, with funds guaranteed for three to five years.
“One of Shanghai’s important benefits in AI development is its strong funding,” said Pan Herin, a member of China’s Ministry of Industry and Information Technology’s expert committee. However, Pan pointed out that the high operating costs in Shanghai often push AI startups to cheaper alternatives like nearby Hangzhou.
National competition is getting hot
Shanghai’s initiative reflects the broader pattern of China, where cities are actively competing to establish AI dominance in what has become a fierce intercity competition. Hangzhou emerged as a particular rival, and last year announced plans to distribute 250 million yuan to calculate electricity subsidies while nurturing Six Little Dragons, a collection of well-known Chinese startups, including AI player Deepseek.
The intercity rivalry exceeds Shanghai and Hangzhou, with Shenzhen, Chengdu and Beijing also implementing similar support measures. This situation shows that artificial intelligence has become a strategic priority in China’s domestic AI competition, at multiple levels of the Chinese government.
Trump’s AI strategy maintains pressure
The timing of Shanghai’s announcement coincides with the Trump administration’s comprehensive AI action plan, announced on July 23rd. The 28-page strategy maintains strict limits on key technologies while accelerating deregulation and infrastructure support for US AI companies.
Donald Trump described the plan as “a US policy to do whatever it takes to lead the world of artificial intelligence,” highlighting America’s intention to become an “AI exporter” and maintain national security protections.
The plan implies a plan to close loopholes in current export restrictions, boost the surveillance of overseas end users, and explore geo-recruitment tools that block access to “countries of concern” like China.
China’s independence strategy shows results
Despite US restrictions, analysts are forecasting significant growth in China’s domestic AI industry. Analysts at Bernstein, led by Lin Qingyuan, predict that domestic chips will win 55% of China’s AI accelerator market by 2027, up dramatically from just 17% in 2023.
“Export controls have created unique opportunities for domestic AI chip vendors as they do not compete with the most sophisticated global alternatives,” says Bernstein’s research notes.
This growth reflects on continued technological advancements, and Chinese companies are increasingly in line with the performance of downgraded chips sold to China. Huawei’s Ascend 910C currently reaches around 65% of Nvidia’s Supreme H100 capacity, but the computing power remains limited due to its lack of direct compatibility with Nvidia’s Cuda software platform.
Geopolitical implications and future prospects
Bo Zhengyuan of Plenum, an independent, China-centric research platform, argues that Trump’s approach represents a shift from Biden’s containment strategy to more direct competition. “So far, the ‘yards’ have not been smaller,” Bo said. South China Morning Post See article, Export Control Range. “What’s different is rhetoric. Now it’s head-to-head rather than containment.”
The AI competition between China and the US appears to be set to be further strengthened. Therefore, at the World Artificial Intelligence Conference in Shanghai, Prime Minister Li Qiang called for international cooperation to ensure that AI does not become an “exclusive game” that can only be accessed by a selected few.
But neither US pressure nor Chinese subsidies guarantee a clear winner in this technical race. “AI is not something you can build overnight with policy support alone. It’s a long game shaped by engineering, talent and infrastructure,” Bo says.
As China’s data resources, algorithms, and AI talent continue to compete with the US despite chip limits, the outcome of this technological competition could ultimately depend on either the US technology limits or the Chinese approach to self-reliance investment.
“There are no clear winners or losers in the next decade,” Bo concluded, suggesting that this technical rivalry will define the AI landscape for years to come.
Reference: Leng Zhengfei: The Future of Chinese AI and the Long Game of Huawei
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