China’s AI Playbook: Reshaping Strategy to Outpace the West

China is rapidly scaling AI dominance through massive investment, government-backed innovation, and aggressive competition. But can it sustain its AI momentum?

The global artificial intelligence (AI) race isn’t just about innovation anymore—it’s a battle for dominance in efficiency, affordability, and accessibility. To take the lead, China is making serious moves. The country now aims to lead the AI revolution, and recent developments like DeepSeek R1 suggest it’s closing in on that goal. With billions pouring into AI infrastructure and regulations designed to fast-track innovation, China is set to position itself as anAI powerhouse by 2030.

In 2024 alone, its private sector pumped $3.15 billion into generative AI—a staggering 500% jump from the previous year. According to a report by Bain & Company, AI is expected to contribute $600 billion annually to China’s economy by the end of the decade, the impact reaches far beyond tech.

However, it's not only the country’s tech giants that drive its AI momentum—startups are shaking up the race. While industry leaders like Baidu and Alibaba spearhead large language model (LLM) innovation, emerging players like ShengShu are proving to be serious contenders against OpenAI and Meta.

China’s AI Arsenal: Formidable Competitors in the Global AI Arms Race

Alibaba’s latest LLM, Qwen 2.5, is making waves with its superior text, image, and audio processing capabilities. Supporting 29 languages and handling up to 128,000 tokens in a single conversation, it far exceeds the context window of previous models. The company is also teaming up with Apple to support iPhone AI services in China—a strategic move that could help Apple regain ground as it battles slipping smartphone sales in its key market. While Apple’s devices outside China rely on a blend of its own Apple Intelligence and OpenAI’s ChatGPT, it remains unclear whether the Alibaba partnership will follow a similar path.

Meanwhile, Baidu is gearing up to launch Ernie 5 in late 2025, a multimodal model designed to process and generate text, video, images, and audio.

China’s also making waves in video AI, a key battleground for U.S. tech giants. One standout player is ShengShu Technology, rivaling OpenAI’s Sora with its Vidu 2.0 model within the next six months. Backed by Baidu Ventures, Vidu 2.0 can generate AI-driven videos at just $0.0375 per second—an astonishing 52% lower than the industry average. Vidu’s one-click prompt templates allow users to easily create complex actions, props, and animations with a single command.

So why is China’s AI sector suddenly booming? A big part of China’s success comes from its universities and academic institutions, where top researchers often stay in academia rather than jumping to big tech—a stark contrast to their Western counterparts, where talent is quickly snapped up by companies.

“The U.S. is currently underinvesting in its academic ecosystem,” Yury Lifshits, founder and CEO of AI video tool Nim, told me. “Much of the progress in AI and technology has been driven by a strong academic foundation and an open-source culture that fosters collaboration. Innovation cannot rely solely on corporate efforts.”

The country has implemented a research evaluation system that favors publications indexed by the Science Citation Index (SCI). SCI papers are mandatory for doctoral degrees, faculty hiring and promotion, funding applications and university rankings. Monetary incentives and performance bonuses are used to encourage Chinese scholars to publish SCI papers. Some universities offer cash-per-publication policies, leading to additional revenues for researchers.

Rather than chasing AI for the sake of innovation, China is focused on building tech that’s practical and widely useful for particular use cases—one of the key reasons behind its rapid advancement. Moreover, the rise of open source culture within its tech startup ecosystem has also led to a substantial new flurry of ideas, especially for AI.

There’s also a strong business and economic incentive for Chinese companies to align with government goals. The government employs various policy incentives such as grants, tax breaks and preferential treatment for companies that align with its strategic goals.

“The government sets long-term targets—where they want to be in five or ten years—but companies have plenty of freedom in how they get there. That creates a landscape where multiple approaches are explored at once, even fostering competition within companies to hit the broader objective,” Itamar Friedman, CEO and co-founder of Qodo, told me.

Friedman, a former Director of Machine Vision at Alibaba, believes this structured yet flexible approach helps prevent wasteful over-investment. He noted that China’s AI push isn’t a sudden, unsustainable boom—it’s the result of a long-term strategy that dates back to 2016 when the country ramped up AI investment after DeepMind’s AlphaGo victory.

Can the West and Others Keep Up with China’s AI Expansion?

For years, the U.S. has seemingly led the AI race, largely driven by innovations from Silicon Valley giants including OpenAI, Google DeepMind and Meta. Europe, on the other hand, though slower to build major AI companies, has played a key role in shaping AI ethics and regulation. But China’s AI ecosystem operates differently.

“Chinese AI firms have unparalleled access to vast amounts of data, often collected through government-backed initiatives, which enables them to develop more accurate and effective AI models,” said Serena H. Huang, AI Advisor at Fortune 100 companies and a former big tech analytics leader. “They have been able to leverage their country's large population and mobile-first economy to develop AI solutions that are highly scalable and adaptable to real-world scenarios.” With vast data access and a culture of rapid deployment, China may soon surpass the West in certain areas of tech innovation.

The U.S. government has started to recognize the heat of the global AI arms race. The Trump administration recently took steps to slow China’s progress, imposing export controls on advanced semiconductors and AI chips to curb the country’s high-performance AI computing ambitions. While such measures are aimed at protecting national interests and controlling AI’s path forward, they also hinder global innovation.

“It’s possible that China will find alternative ways to boost its domestic production, accelerating innovation on its own terms,” says Friedman. “While sanctions may slow progress in the short term, they will ultimately push China to develop even more robust and independent capabilities in the chip industry.”

China’s AI momentum alone won’t guarantee success. But one thing is certain: whether the West can keep pace or China stumbles under new constraints will define the next chapter of global AI innovation.

“Western companies and governments should invest in AI research and development, attract and retain top talent, and prioritize ethical considerations in the development and deployment of AI technologies,” added Huang. “The global AI landscape is rapidly evolving, and China's influence is only just beginning to be realized.”