In 2017, China’s government defined its long-term strategy for artificial intelligence: become a global AI leader to boost its technological and economic progress.
Supported by ample government funding, the plan aligned corporate interests with national priorities. Eight years later, AI is at the center of business priorities, consumer behavior and economic growth in China.
China’s core AI industry may become a market valued at $140 billion by 2030, according to Morgan Stanley Research. That estimate jumps to $1.4 trillion when related sectors, such as infrastructure and component suppliers, are included.
“China has been methodically executing a long-term strategy to establish its domestic AI capabilities,” says Shawn Kim, Morgan Stanley’s Head of Technology Research in Asia. “The nation’s robust academic foundations, innovative methodologies, data, talent and increasing foreign investment are propelling it toward becoming a leading AI powerhouse.”
China’s AI leadership will depend on four factors:
Data: The nation’s population of more than 1.4 billion people and 1.1 billion users of mobile apps, e-commerce platforms and social media provide vast amounts of data crucial for training AI models.
Energy supply: China has more nuclear power plants under construction than the rest of the world combined, which will become critical to meeting the power demands of data centers.
Computing: Amid U.S. export controls, China's path to full self-sufficiency in advanced chip manufacturing remains uncertain, but the local industry has demonstrated resilience and progress.
Talent: The country has 47% of the world’s top AI researchers and more than 50% of AI patents. It continues investing heavily in the workforce, with government-backed programs encouraging students to pursue AI-related degrees and critical skills.
China’s Different AI Approach
In the next five years, China aims to achieve full independence from foreign countries in its AI development. Affected by U.S. export restrictions, the nation is prioritizing more efficient and less expensive AI technologies.
Case in point: DeepSeek—the Chinese startup that took the world by surprise in January when it announced that it spent just $5.6 million to develop an influential AI model—has helped facilitate a proliferation of Chinese AI apps. That in turn is accelerating consumer adoption.
“China is less concerned about building the most powerful AI capabilities, and more focused on bringing AI to market,” Kim says. “China embraced open-source AI, while the U.S. appears to be moving toward closed, tightly controlled AI systems.”
Return on AI Investment
China’s efficiency-driven and low-cost approach creates a different path to return on investment. Chinese AI investments may break even in 2028 and achieve a 52% return on invested capital by 2030.
“The next six to 12 months will be a critical period for Chinese AI firms, as an increasing number of enterprise deployments attempting to solve real-life problems will begin to show productivity gains,” Kim says.
In the long term, humanoids, or human-like robots powered by AI, may become broadly used for industrial, commercial and household purposes. The global market for humanoid robots is likely to reach $5 trillion by 2050, with 1 billion units in use, and 30% of those in China, according to Morgan Stanley Research.
AI to Fuel China’s Economic Growth
China’s AI investments may boost its long-term GDP growth and offset factors such as its aging working population and slowing productivity growth.
During the next two to three years, AI may add an additional 0.2 to 0.3 percentage point to China’s annual growth. It could also create 6.7 trillion yuan ($930 billion) in equivalent labor value, or 4.7% of the country’s 2024 GDP.
“Over the longer run, the AI revolution will translate into a productivity boost by increasing efficiency, optimizing production processes, and unlocking new products, services and jobs,” says Morgan Stanley Chief China Economist Robin Xing.
Although AI may improve productivity, it could also disrupt the labor market and create deflationary pressure.
“If left unaddressed, AI could exacerbate income inequality and add to social stability risks,” Xing says. “To mitigate the pain, policymakers may need to strengthen social protection for the unemployed, increase support for AI-oriented education and career training, and encourage job creation in sectors less susceptible to AI displacement.”
For deeper insights and analysis, ask your Morgan Stanley Representative or Financial Advisor for the full report, “China - AI: The Sleeping Giant Awakens,” (May 13, 2025).
