Intense rivalry is shaping the next phase of artificial intelligence development as both China and the United States increase efforts to secure technological and economic advantages. The recent move by Shanghai to introduce a large-scale subsidy program suggests that Chinese cities are seeking not just to advance local industry, but to decrease reliance on foreign technology. This approach highlights diverging strategies between the two nations, with each side responding to evolving political and regulatory landscapes while pursuing their AI ambitions. Domestic manufacturers and regional governments are revising incentives and adapting to restrictions, shaping the competition’s trajectory in unexpected ways.
Earlier initiatives from cities like Hangzhou indicated China’s intention to strengthen domestic AI resources through investments and support for local companies. Over time, Chinese firms have demonstrated an ability to adapt to US technology restrictions by developing alternative chips and increasing local computing capacity. The latest developments suggest that these efforts have started to narrow the performance gap with international competitors. Whereas initial policies focused heavily on joint ventures and overseas partnerships, current measures place greater importance on domestic self-sufficiency and independent technology development. This strategic adjustment reflects the broader geopolitical context that continues to drive policy changes on both sides of the Pacific.
How Is Shanghai Advancing AI Development?
Shanghai recently launched a one billion yuan (US$139 million) AI industry subsidy designed to support local innovation. Of this budget, 600 million yuan is allocated to enhance computing power, while 300 million yuan targets third-party AI models and 100 million yuan funds training dataset procurement. Subsidy rates can range from 10% to the full contract value, depending on the characteristics of each project. In addition, newly established research institutions may receive long-term funding of up to 500 million yuan.
What Role Do Nationwide City Initiatives Play?
Other cities, such as Hangzhou, Shenzhen, Chengdu, and Beijing, are implementing similar measures to encourage local AI businesses. Hangzhou, for example, is distributing 250 million yuan in computing subsidies and supporting start-ups like DeepSeek. These local efforts signify a broader trend, as municipal governments view AI as essential to future economic competitiveness. The overlapping systems of support show the extent to which AI has become a national priority in China.
Can Domestic Products Compete with US Technology?
Domestic chipmakers are projected to capture a greater share of China’s AI accelerator market, with the forecast rising from 17% in 2023 to 55% by 2027. Products such as Huawei’s Ascend 910C are approaching the performance of modified Nvidia chips available in China, although software compatibility issues remain. Regarding this transformative period, one industry analyst remarked,
“Export controls have created a unique opportunity for domestic AI chip vendors, as they are not competing with the most advanced global alternatives.”
This shift is reflected in increasing investment levels and growing technological capabilities within China’s AI ecosystem.
The American policy stance, shaped by the Trump administration’s AI Action Plan, outlines tighter controls over exports and emphasizes the US goal to maintain dominance. As policy evolves, US authorities stress their commitment to limit technology transfers to China.
“It is a policy of the United States to do whatever it takes to lead the world in artificial intelligence,”
President Trump stated when discussing ongoing efforts. This head-to-head dynamic is influencing decisions and investments in both countries.
Observers differ on whether subsidy-driven domestic AI advancement can offset the impact of continued US restrictions. Shanghai’s considerable funding highlights the determination of Chinese actors to build up a resilient local industry, while adjustments to US policy ensure that competitive pressure persists. Long-term outcomes are likely to hinge not just on capital and regulatory controls but also on the ability of Chinese companies to overcome engineering hurdles and develop software that rivals established American platforms. For businesses, these developments signal the need to monitor shifts in global innovation policy and to factor potential geopolitical tension into future investment and technology planning.
