中国AI泡沫背后：产业政策驱动的资本布局

Leia Wang is a is a nonresident scholar in the Technology and International Affairs Program at the Carnegie Endowment for International Peace, as well as an associate at the Centre for the Governance of AI (GovAI).

击鼓传花 (ji gu chuan hua), roughly translated as “beat the drum, pass the flower,” is a Chinese children’s game in which players pass a flower around while a drum sounds. When the drum stops, whoever is left holding the flower loses the round.

The phrase has recently acquired a secondary use in Chinese financial and policy commentary as a shorthand for a speculative chain in which risk is passed between participants. From anonymous investor forums to listed-company risk disclosures, it has been applied to the 2015 A-share bubble, property speculation, local government debt rollovers, P2P lending, and, most recently, the venture capital (VC) market. As one Chinese venture capitalist explained to me,1 the game is China’s AI market, and investors are the players. Each investor races to pass along overvalued AI companies before the “beat” of the capital-raising cycle stops.

Many domestic financial actors caution that this dynamic indicates China’s early-stage AI market is becoming a financial bubble. Valuations have inflated faster than revenues, capital is concentrated in a handful of hot subsectors, and money keeps flowing toward companies with no clear path to profitability. They cite the roughly 80,000 Chinese AI companies that have dissolved or deregistered in the past two years.

While they may be right that these are indicators of a market about to correct itself, it is more likely that they are signs that Chinese industrial policy is at work. Since 2017, when AI was designated a strategic technology, Beijing has taken an active role in promoting the industry’s growth. Over the past eighteen months, the state has prioritized funding early-stage companies, launching dedicated national AI funds and committing hundreds of billions of yuan toward AI ventures. This influx of concentrated capital has contributed to bubble-like dynamics as funding rushes in faster than the industry can absorb it.

Yet the strategy of financing new ventures in strategic sectors is one Beijing has used before. From solar panels to electric vehicles (EVs), the government used state capital to build other priority industries. Whether AI follows a similar trajectory depends on how the funding is deployed, including the mechanisms and stakeholders involved.

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The Rise of Policy-Driven Funding

The origins of the government venture funding architecture stem from the history of China’s AI financing ecosystem. Over the past decade, shifting domestic and international policies have shaped the sources of venture capital and the structure through which it is deployed.

Before 2018, foreign venture capital played a major role in Chinese tech financing. Firms like IDG, Goldman Sachs, and Peninsula Capital funded the first wave of internet giants, such as Alibaba, Tencent, and Baidu. These firms brought both large-scale capital and a Western investment philosophy of high-risk, staged investment, which shaped what got funded and how within the tech startup world. However, driven by rising US-China tensions, the share of Chinese VC deal value involving foreign investors fell from 54.8% in 2018 to roughly 20% in 2023. President Biden’s August 2023 executive order (EO) on outbound investment, which prohibited or required notification for certain US investments in Chinese AI, semiconductor, and quantum firms, accelerated this process. Although the EO didn’t take effect until January 2025, many international firms split off their China entities, downsized their domestic presence, or withdrew from China altogether in anticipation of its enforcement. Dollar-denominated funds, which accounted for nearly 14% of China VC fundraising in 2021, accounted for barely 1% by early 2025.

Domestically, private capital actors were in no position to fill the gap. As foreign funding retreated, a wave of new regulations hit the Chinese tech sector, stymying the industry’s main sources of funding and exit avenues. The 2018 asset management rules restricted the underlying wealth management structures that supplied the largest source of domestic private funding. This was exacerbated by Beijing’s 2021 tech crackdown, beginning with regulators fining Alibaba a record 18.2 billion yuan ($2.8 billion) for anticompetitive behavior. The campaign subsequently swept up Tencent, Meituan, and many of the other Chinese consumer internet champions. Beijing then launched a cybersecurity probe into ride-hailing giant DiDi as it pursued a New York IPO, leading regulators to pull Didi apps from app stores and forcing the company to delist. On the US side, the Holding Foreign Companies Accountable Act threatened to delist Chinese companies due to disputes over auditing standards. This made US listings, once the clear objective of most startups, no longer a viable option. By 2024, venture capital fundraising sank to its lowest level in almost a decade.

With the retreat of private funding, state capital came to dominate early-stage funding. The same year private VC was at its lowest, state-owned capital accounted for 82% of all new LP contributions. Since then, state funding has continued to pour into the venture capital ecosystem, especially within AI. As AI has grown in importance, the government has expanded its breadth of funding to various stages and types of AI companies, with state investors leading some of the sector’s largest financing rounds.

Government Funding’s Role in the AI Industry

As Beijing increases its investment in the AI industry, government priorities and funding mechanisms are playing a large role in shaping the industry. The set of stakeholders involved in the government financing apparatus, the terms attached to the funding, and how this money is directed and allocated now disproportionately determine what gets built.

Currently, much of this capital has been deployed via government guidance funds (GGFs), vehicles set up to channel state capital in line with industrial goals, including promoting “strategic emerging technologies” (战略性新兴产业 zhan lue xing xin xing chan ye), advancing industrial upgrading, and reducing reliance on foreign suppliers in critical sectors. GGFs have played a crucial role in incubating “leapfrog technologies” such as EVs and renewables, 5G and telecom, and now, semiconductors and AI. Over the past two decades, GGFs have amassed 7.7 trillion yuan ($1.1 trillion) in committed capital,2 roughly twenty times what the US government’s public-private investment program, the Small Business Investment Company (SBIC), held at its record 2025 high, and enough to fund DARPA at its current budget for two centuries.

Between 2000 and 2023, nearly a quarter of GGF capital flowed to AI-related firms. Within the AI supply chain, the National Integrated Circuit Industry Investment Fund (the “Big Fund”)3 has been instrumental in shaping the semiconductor industry. Its first 138.7 billion yuan ($21.8 billion) anchored national champions along the chip-making supply chain from downstream chipmakers like foundry leader SMIC and memory maker YMTC to upstream equipment and materials suppliers like NAURA and Piotech. The fund was renewed several times, first in 2019 with 204 billion yuan ($29 billion) after China’s AlphaGo moment, and again in 2024 with 344 billion yuan ($47.5 billion) after ChatGPT’s launch to further increase AI chip and chipmaking equipment production.4