China’s NPC boosts AI innovation as DeepSeek sparks regional rivalry

China’s annual National People’s Congress (NPC), usually one of the highly scripted political events, had new life this year, passing its final verdicts on Tuesday in Beijing. Behind it is a revolutionary artificial intelligence (AI) achievement made by local startup DeepSeek, exciting investors, politicians, and regulators in equal measure.

DeepSeek’s recent achievement has positioned AI stock investment as a patriotic act in China. The country is notoriously known for its R1 model, which has competitive performance with other foreign AI models and less resource-hungry training.

President Xi Jinping’s meeting with business community leaders, including Alibaba’s Jack Ma, also helped power the AI momentum. Throughout the weeklong event, party-affiliated officials from various regions fanned out to promote the creation of “AI hubs” in their provinces.

Proponents said the proposals could help address abuse, including ones to promote AI education, expand the technology’s uses, and bolster research and regulation.

China’s renewed emphasis on AI has also had implications for economic policy. A 1 trillion yuan ($138 billion) state-funded startup fund that was recently rolled out has again sparked debate over speeding up the development of AI and quantum technology. And the government’s outright endorsement of leading AI innovation represents a fundamental change in its economic policy.

Competition for AI among provinces and cities in China has been fierce

While there are reasons—such as talent, funding, or infrastructure—why a region might be well-suited to developing AI, Communist Party officials in various regions have been lobbying for their regions to be the best place to do so, loudly showcasing what they have to offer.

Chongqing’s Communist Party chief, Yuan Jiajun, outlined plans to incorporate AI into the city’s high-end manufacturing industry.

He outlined an “AI+” strategy for innovation in connected vehicles, smart devices, and new materials. Yuan, who also sits on the Politburo, said it is important to support private enterprises and prevent the emergence of a concentrated AI system of “a few large corporations” so that small enterprises can engage in the ecosystem.

And other cities and provinces followed suit. Lawmakers from Shanghai and Guangdong also addressed using AI in scientific research and engineering.

Beijing and Shenzhen launched a 10 billion yuan (US$1.4 billion) fund for AI development last week, and Guangdong unveiled inbound investment subsidies for AI.

Though some fear a replay of history, China’s AI drive is already laying the groundwork for global primacy. Jiangsu, a coastal province north of Shanghai, published three articles last month questioning why its southern neighbour, Zhejiang, became home to DeepSeek and five other AI companies called the “six little AI dragons.”

Hangzhou’s relatively freewheeling regulatory environment has fostered innovation, sparking discussions on how other regions can implement similar measures.

In NPC discussions, lawmakers emphasized that government policies should be instrumental to private-sector development. Shanghai Federation of Industry and Commerce member Zhou Tongyu noted that nearly 80% of small—and medium-sized technology firms find it difficult to obtain bank loans. To help firms access funds, she recommended that business-operation data be used as collateral instead of property assets.

Chinese government is levelling the field for AI innovations

China’s government is changing their strategy for developing technology from control to more strategic investment. The current 1 trillion yuan fund adds to the capital for an early investor in AI and quantum technology companies. The policy allows innovation to take place without too much interference from the state getting in the way of the private sector.

Experts say this is an upgrade of China’s industrial policy. Rather than choosing winners, Beijing is a long-term investor and provides financing as the market decides where the expansions will occur. China’s attempt to strike the right balance between decentralized innovation and its historical preference for centralized control will take time, said Tilly Zhang, an analyst at Gavekal Dragonomics.

Despite these efforts, challenges remain. China has a history of launching large-scale economic programs that don’t always align with the fast-moving nature of AI development. Striking the right balance regarding state intervention will be key to sustaining long-term sectoral growth without stultifying innovation.