How China Is Rewriting the AI Code

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Jun 10, 2025

The discussion unveils China's ambitious strategy to dominate the AI sector, focusing on efficiency over sheer power. With U.S. semiconductor restrictions sparking innovation, China has rapidly advanced its AI capabilities through a vast pool of data and resources. The launch of innovative AI solutions like DeepSeek R1 highlights a thriving landscape of startups leveraging open-source technology. Key factors shaping China's future in AI include energy accessibility, data abundance, and talent development. Can China maintain its momentum and achieve global leadership in AI?

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INSIGHT

China's Efficient AI Strategy

China has focused on efficient AI market deployment rather than building the most powerful AI systems.
Hundreds of startups leverage open-source AI models to create specialized market niches.

INSIGHT

China's AI Growth Factors

China's AI future depends on energy, data, talent, and computing resources.
The government uses centralized data, vast energy investments, and top AI researchers to advance AI rapidly.

INSIGHT

China's AI Economic Impact

China aims to be a global AI leader by 2030 with AI embedded in all sectors.
AI can add nearly 5% to China's GDP growth by improving productivity and addressing aging demographics.

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Our Head of Asia Technology Research Shawn Kim discusses China's distinctly different approach to AI development and its investment implications.

Read more insights from Morgan Stanley.

----- Transcript -----

Welcome to Thoughts on the Market. I’m Shawn Kim, Head of Morgan Stanley’s Asia Technology Team. Today: a behind-the-scenes look at how China is reshaping the global AI landscape.

It’s Tuesday, June 10 at 2pm in Hong Kong.

China has been quietly and methodically executing on its top-down strategy to establish its domestic AI capabilities ever since 2017. And while U.S. semiconductor restrictions have presented a near-term challenge, they have also forced China to achieve significant advancements in AI with less hardware. So rather than building the most powerful AI capabilities, China’s primary focus has been on bringing AI to market with maximum efficiency. And you can see this with the recent launch of DeepSeek R1, and there are literally hundreds of AI start-ups using open-source Large Language Models to carve out niches and moats in this AI landscape.

The key question is: What is the path forward? Can China sustain this momentum and translate its research prowess into global AI leadership? The answer hinges on four things: its energy, its data, talent, and computing. China’s centralized government – with more than a billion mobile internet users – possess enormous amounts of data. China also has access to abundant energy: it built 10 nuclear power plants just last year, and there are ten more coming this year. U.S. chips are far better for the moment, but China is also advancing quickly; and getting a lot done without the best chips. Finally, China has plenty of talent – according to the World Economic Forum, 47 percent of the world’s top AI researchers are now in China.

Plus, there is already a comprehensive AI governance framework in place, with more than 250 regulatory standards ensuring that AI development remains secure, ethical, and strategically controlled.

So, all in all, China is well on its way to realizing its ambitious goal of becoming a world leader in AI by 2030. And by that point, AI will be deeply embedded across all sectors of China’s economy, supported by a regulatory environment. We believe the AI revolution will boost China’s long-term potential GDP growth by addressing key structural headwinds to the economy, such as aging demographics and slowing productivity growth. We estimate that GenAI can create almost 7 trillion RMB in labor and productivity value. This equals almost 5 percent of China’s GDP growth last year.

And the investment implications of China’s approach to AI cannot be overstated. It’s clear that China has already established a solid AI foundation. And now meaningful opportunities are emerging not just for the big players, but also for smaller, mass-market businesses as well. And with value shifting from AI hardware to the AI application layer, we see China continuing its success in bringing out AI applications to market and transforming industries in very practical terms. As history shows, whoever adopts and diffuses a new technology the fastest wins – and is difficult to displace.

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