Former Google CEO Eric Schmidt said China’s dominance in artificial intelligence could be hampered by a funding gap in the field. He offered a grim assessment of China’s AI prospects as China and the United States vie for dominance.
However, analysts say that funding will not be an issue for China’s AI development given the deep pockets of its private and state investors, especially as Beijing, big tech companies and investors are united in their determination to accelerate AI development from chips to applications.
Schmidt said China lacked the same “financial market depth” compared to the United States, which has the world’s “most extraordinary capital markets,” adding that Chinese startups actually “can’t get the money” to keep up with the AI race.
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“It’s very difficult to produce these large models with this kind of complex training without access to funding,” Schmidt said Monday at a forum hosted by the Harvard Kennedy School, according to a video posted on the Harvard Kennedy School’s YouTube channel.
Schmidt’s comments reflect that China’s challenging economy and changing start-up environment have dampened interest from market-driven venture capital funds in recent years.
The trend has since been exacerbated by U.S. restrictions that have prevented venture capital funds — historically one of the largest sources of capital that have made lucrative bets on China’s tech and internet growth — from backing key Chinese industries, including artificial intelligence, on national security grounds.
However, capital from governments and big tech companies has flowed in to make up for the lack of market-driven venture capital, analysts at global startup and venture capital data service PitchBook said.
Melanie Tng, an analyst at PitchBook who focuses on Asia-Pacific private capital, said in a report this week that capital formation in China now comes from and will continue to be “driven by state-backed programs and corporate ecosystems” as non-domestic participation remains limited.
“In China, a combination of provincial subsidies and corporate initiatives… [Big Tech] Companies continue to support large-scale AI commercialization, even in the private sector [venture capital] Liquidity is tightening,” Tng said.
Alibaba Group Holding Ltd. and Tencent Holdings Ltd. have become two of China’s largest investors in artificial intelligence, backing well-known companies from Beijing’s Moonshot AI to Shanghai’s MiniMax. Meanwhile, state-backed investment vehicles have been writing checks for companies like Zip, also known as Z.ai. Alibaba owns Postal Service.
Su Lianjie, chief analyst at consulting firm Omdia, said that China does not lack capital, but lacks a selective and transparent financial system, which may hinder investors from making large-scale artificial intelligence bets in China.
Chinese investors are making more deals with smaller basket sizes, according to data compiled by local venture capital analytics firm ITJuzi.
Data shows that as of early December, they had supported 741 artificial intelligence-related startups, a 40% increase from 521 companies in 2024. However, the value of investments in both time frames remained around 62 billion yuan ($8.6 billion), suggesting that investors are spreading their bets across broader portfolios as they anticipate practical applications of artificial intelligence in traditional areas.
Schmidt said in his speech on Monday that China is “focused on embedding artificial intelligence into everything from smart toasters to cars to robots” due to its advantages in manufacturing, supply chains and cost management.
Schmidt said that due to various reasons, including lack of funds, the gap between China and the United States in artificial intelligence will widen, while he also acknowledged China’s strength in open source artificial intelligence.
“I don’t see open source leadership in the United States, I only see open source leadership in China,” he said. “I think those are the facts.”
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