Why China’s AI Bubble Is Also Industrial Policy

ChinaTalk · 1 week ago · 36

China's AI funding surge, driven by government industrial policy since 2017, resembles a financial bubble with 80,000 AI companies dissolved in two years, but the concentrated state capital deployment through guidance funds is intentional strategy rather than market dysfunction. The National AI Industry Investment Fund launched in January 2025 with 60 billion yuan, followed by a 100 billion yuan venture capital guidance fund, as Beijing uses state-controlled capital to build AI capability and reduce foreign dependence. Short-term incentives embedded in the funding structure—local officials' three-to-five-year cadre cycles and venture firms' redemption clauses on 80 percent of deals—compress patient capital timelines and drive bubble-like dynamics that prioritize quick returns over long-term AI development.