China is embarking on an ambitious five-year plan to invest $295 billion in constructing a national network of AI data centers across the country. This initiative, driven by government agencies like the National Development and Reform Commission, seeks to propel China's domestic AI sector and challenge the U.S. for leadership in this critical technology. State-owned enterprises such as China Mobile Ltd. and China Telecom Corp. are expected to operate the majority of these connected computing hubs. The blueprint emphasizes reliance on local suppliers, including Huawei Technologies Co., aiming to circumvent U.S. export controls that restrict access to advanced chips from companies like Nvidia Corp.
This significant investment underscores Beijing's commitment to AI, especially as the country experiences a "K-shaped" economic recovery where AI-driven industries and specific "smart" cities are thriving, while traditional sectors and overall consumer demand lag. Cities like Hefei, a hub for memory chip production, are at the forefront of this AI transformation, experiencing rapid growth in AI hardware manufacturing. Nomura economists Jing Wang and Ting Lu highlight that the benefits of AI-driven growth are predominantly concentrated in a few smart cities, creating a disparity within the economy.
The AI supercycle is already evident in China's economic performance, with AI-related products (including semiconductors, power equipment, and consumer electronics) accounting for 20.3% of total exports in 2025. This category saw a 34.8% year-over-year growth in the first five months of 2026, contributing 6.8 percentage points to overall export growth. High-tech industrial production, with a 25.4% rise in integrated-circuit output and a 28.1% increase in industrial-robot production year-over-year in the first five months of 2026, is becoming a primary driver of growth. Citi Research forecasts China's GDP growth at 4.7% for 2026, with nominal growth potentially reaching a five-year high of 6.7%, largely due to AI-related activity.
