In our previous newsletter, we argued that the scale and quality of available data present substantial obstacles to the innovation of leading-edge AI technologies in China. This week, we explore how these obstacles have led Beijing to increase its emphasis on AI application. While data limitations have been prohibitive to the innovation of China’s foundational AI technologies, such limitations are simultaneously encouraging a pivot to an application-based AI development strategy – the use of AI technology already at Beijing’s disposal to meet clearly defined sociopolitical and administrative benchmarks. These specialized AI-driven solutions are practicable and easily replicable, a boon for Beijing as it works to expand its authoritarian governance model, both domestically and beyond its own borders. In response, the U.S. must also recalibrate its strategy. Rather than maintaining a single-minded focus on restricting Chinese innovation in foundational and cutting-edge AI technologies, Washington must place greater emphasis on public-sector AI applications, within a framework of transparency and accountability that can be used to counter Beijing’s digital authoritarian model globally.

Let us first examine China’s “application-oriented” AI development strategy in a bit more detail. At a State Council meeting held in March of 2024, Premier Li Qiang unveiled the “AI+ Initiative”, a policy mandating the state-led integration of AI into traditional industries, public services, and governance to drive economic growth, enhance social management, and bolster technological self‐reliance. This strategy prioritizes the rapid deployment and practical use of artificial intelligence technologies in areas aligned with national priorities, alongside the pursuit of breakthroughs in foundational research. This approach is rooted in the country’s current political and economic situation: facing U.S. export restrictions on advanced semiconductors and persistent technological gaps in core algorithms, Beijing has taken a practical approach, shifting focus toward integrating the AI technologies it already has into real-world applications.

Under this strategy, Chinese companies benefit from a relatively clear policy environment that prioritizes deployment and scale, alongside technical sophistication. This model encourages rapid prototyping and iterative deployment, often with close government collaboration, allowing China to build a robust ecosystem of specialized, AI-driven solutions that are deeply embedded in the country’s socio-political fabric.

Evidence of Beijing’s pivot toward an application-oriented AI development strategy can be found in the shifting direction of funding and investment across China’s AI ecosystem. Over the past two years, there has been a noticeable reallocation of both public and private capital toward deployment-centric projects. A 2024 report by the China Academy of Information and Communications Technology (CAICT) noted that more than 65% of new AI-related government grants and subsidies were earmarked for sectors such as smart governance, healthcare automation, industrial manufacturing, and agricultural tech—rather than basic research into foundational models or algorithms.