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China’s technology giants have doubled their investments in artificial intelligence infrastructure this year, despite U.S. sanctions designed to limit the country’s progress in this important technology.
Alibaba, Tencent and Baidu had made combined investments of 50 billion RMB ($7 billion) in the first half of the year, compared with 23 billion RMB a year earlier. The groups said the focus was on buying processors and infrastructure needed to train large language models for AI, both their own models and those of others.
TikTok parent company ByteDance has also been increasing spending on AI, backed by more than $50 billion in cash and with the advantage of being privately held and relatively free from investor scrutiny, two people familiar with the matter said.
“We will continue to invest in research and development and AI investments to ensure the growth of our AI-driven cloud business,” Alibaba CEO Eddie Wu told investors this month. “This is simply because we see a lot of unmet demand from many customers.”
Alibaba buys processors to train its Tongyi series of AI models and leases computing power to others. The Chinese tech giant’s capital expenditure totaled 23 billion RMB in the first half of the year, up 123 percent year-on-year.
“When we make investments like this, we see that once a server is up and running, it immediately runs at full capacity,” Wu said. “We can expect a very high ROI (return on investment) in the next few quarters.”
Revenue from the group’s cloud business increased in the second quarter, rising 6 percent year-on-year. According to Alibaba, sales of AI-related products more than doubled year-on-year.
The boost is partly due to investments in Chinese AI startups geared toward acquiring customers. Nearly half of the $800 million the company invested in AI startup Moonshot in February came in the form of vouchers for purchasing its cloud services.
While US export controls cut off access to Nvidia’s leading AI processors like the H100 and the upcoming Blackwell series, China’s tech giants can buy lower-power processors like Nvidia’s H20, which is designed not to exceed the processing power thresholds set by Washington.
Analysts expect Nvidia to deliver more than a million of these processors to Chinese technology companies in the coming months. Each will cost between $12,000 and $13,000. ByteDance is an important customer, said the two people familiar with the matter.
Dylan Patel of chip research group SemiAnalysis estimates that TikTok’s parent company has bought hundreds of thousands of H20 for its data centers in China, while also investing heavily in collaborating with partners and building computing infrastructure in Johor, Malaysia.
“ByteDance is the largest Chinese buyer of AI because it invests heavily in China and Malaysia and buys in U.S. clouds,” Patel said.
Social media and gaming giant Tencent said capital expenditure rose to 23 billion RMB in the first six months, up 176 percent year-on-year, partly “driven by investments in GPU and CPU servers.”
Chief Strategy Officer James Mitchell said the group’s cloud business had benefited from increasing demand for graphics card rental units, albeit to a lesser extent than the boom among U.S. competitors.
“In China, you don’t have the same abundance of extremely well-funded startups trying to develop large language models on their own. There are a lot of small companies, but they are capitalized at a billion or two billion dollars,” he said. “They are not capitalized at $10 billion or $90 billion” as in the United States.
A person familiar with Tencent’s investment strategy said the company is writing smaller checks to AI groups due to ongoing concerns about Beijing’s regulatory stance.
Baidu, the long-time leader in China’s AI industry, was the most cautious in capital spending, spending 4.2 billion RMB in the first half of the year, up 4 percent year-on-year.
Overall, capital spending by Chinese big tech companies is still far behind that of their American competitors. Alphabet, Amazon, Meta and Microsoft spent $106 billion in the first half of the year and announced further investments for the coming months.
