- China’s AI investment could reach $98 billion in 2025, a 48% growth.
- Government funding will dominate at $56 billion, while internet companies contribute $24 billion to AI.
China’s AI investment is poised to reach unprecedented levels in 2025, with forecasts suggesting the mainland could deploy between $84 billion to $98 billion in AI capital expenditure this year, according to a new Bank of America report.
The surge represents a potential 48% growth from 2024 levels, underscoring the escalating technological competition between China and the rest of the world.
The massive spending projection comes as superpowers race for dominance in AI, with China’s approach differing significantly from the US in funding sources and infrastructure priorities.
Chinese government takes a leading role in AI funding
Government investment will anchor China’s AI spending strategy, with public sector contributions expected to account for up to 400 billion yuan ($56 billion) of the total expenditure. The government-led approach contrasts with the more private sector-driven AI investments seen in the US.
“Obviously China and the US are competing with each other,” said Matty Zhao, Bank of America Securities’ co-head of China equity research, in a Monday interview with the South China Morning Post. “Since a lot of the chip bottleneck depends on technology development, I think what the [Chinese] government can do is what they’re good at first.”
China’s major internet companies are also projected to contribute significantly, with an estimated 172 billion yuan ($24 billion) expected from tech giants. The remainder of the China AI investment is expected to come from telecommunications network operators and special-purpose bonds, according to the BofA analysis.
DeepSeek success catalyses investment surge
The predicted surge in China’s AI investment reflects growing enthusiasm following DeepSeek’s breakthrough achievements. The Hangzhou-based startup captured global attention by releasing two advanced open-source AI models, V3 and R1, developed at a fraction of the typical cost and computing power required for large language model projects.
DeepSeek’s cost-effective approach to AI development has energised Chinese tech companies, prompting major players to announce substantial investment increases. E-commerce giant Alibaba Group Holding unveiled a 380 billion yuan ($53 billion) capital expenditure plan in February, targeting computing resources and AI infrastructure over three years.
Similarly, Tencent Holdings ramped up its AI commitments after the company’s fourth-quarter 2024 capital expenditure nearly quadrupled year-on-year to 36.6 billion yuan ($5.1 billion).
Infrastructure focus sets China apart
While US AI spending concentrates heavily on information technology hardware, particularly semiconductors, China’s strategy emphasises data centre construction and supporting energy infrastructure. The approach uses what Zhao identifies as China’s energy resource advantages.
The infrastructure-focused China AI investment strategy addresses practical challenges facing the industry. Beijing recently released an action plan coordinating data centre development with green energy infrastructure in specific regions to meet the substantial power requirements of high-performance computing facilities.
The buildout is expected to drive significant demand in multiple sectors. According to the BofA report, copper and power equipment demand will experience compound annual growth rates of nearly 20% in volume from 2024 to 2030. Liquid cooling solutions face even more dramatic growth projections, with a 57% compound annual growth rate expected in the coming year.
Navigating trade restrictions
China’s accelerated AI infrastructure development occurs despite US trade restrictions on advanced Nvidia AI processors. The country continues expanding its computing facilities while awaiting potential breakthroughs from domestic champion Huawei Technologies in chip manufacturing.
The China AI investment surge represents a response to the US government’s Stargate Project, which plans to deploy up to $500 billion over four years into advanced data centre networks in the US.
Market implications and outlook
The scale of China’s planned AI expenditure signals the government’s commitment to technological self-reliance and competitive positioning. However, the effectiveness of its investment strategy will depend on several factors, including domestic chip development progress, energy infrastructure capacity, and the ability to translate spending into practical AI capabilities.
The competition between Chinese and US AI development approaches offers a fascinating study of different paths toward technological advancement. While the US focuses on cutting-edge hardware development, China’s emphasis on infrastructure and energy resources may provide alternative advantages in the global AI race.
The Chinese AI investment strategy, with its government-led funding and infrastructure focus, represents a significant bet on the future of technological competition between the world’s two largest economies.
