Following the international success of DeepSeek’s advanced artificial intelligence model, Chinese officials have announced plans to establish a state-backed venture capital fund aimed at fueling the country’s technological innovation. The “state venture capital guidance fund” will focus on pioneering sectors such as artificial intelligence, quantum technology, and hydrogen energy storage, according to Zheng Shanjie, head of China’s economic planning agency, the National Development and Reform Commission (NDRC).
Speaking at the ongoing annual gatherings of China’s legislature and advisory body on Thursday, Zheng revealed that the fund is expected to attract nearly 1 trillion yuan (approximately $138 billion) in investments over the next 20 years, drawing contributions from both local governments and private investors.
Chinese leaders view advanced technologies, including microchips, quantum computing, robotics, and AI, as key drivers of economic growth and manufacturing advancements. However, China faces mounting pressure from the United States, particularly in the form of technology restrictions.
Zheng expressed confidence in China’s progress despite external challenges, highlighting the country’s rapid development in AI, microchips, and robotics. “Scenes once only seen in science fiction are now becoming reality. We are steadily advancing toward the global frontiers of technology and innovation,” he stated, adding that these achievements demonstrate China’s determination to accelerate innovation in the face of attempts to block its progress.
DeepSeek’s Groundbreaking AI Model Surprises Global Observers
The announcement follows the success of DeepSeek, a privately-owned Chinese company that recently launched its R1 large language model. The model made headlines in January, nearly matching the capabilities of competitors like OpenAI’s GPT-4, Meta’s Llama, and Google’s Gemini—at a fraction of the cost. This achievement stunned industry experts, given the United States’ ongoing efforts to limit the supply of advanced AI chips to China.
Despite these restrictions, DeepSeek managed to deliver its powerful AI model using relatively less powerful chips, further proving the resilience of Chinese tech innovators in overcoming barriers.
Premier Li Pledges Support for Emerging Industries and Domestic Consumption
In his annual work report delivered earlier this week, Chinese Premier Li Qiang committed to fostering emerging industries, such as bio-manufacturing, quantum technology, and 6G, alongside a focus on advancing embodied AI. Li emphasized the importance of these sectors in China’s strategy to strengthen its technological leadership.
In a shift from the government’s previous emphasis on technology-driven growth, Chinese leaders have also turned their attention to boosting domestic consumption, which has historically lagged behind other major economies. Zheng confirmed that the government will soon release a “special action plan” to stimulate consumer demand.
Despite a strong push for exports, which helped push China’s trade surplus to a record high in 2023, domestic consumption remains relatively low. In 2023, household consumption accounted for just 39% of China’s GDP, compared to 49% in South Korea, 55% in Japan, and 68% in the United States.
HSBC economists have noted that China is actively seeking to bolster its internal consumption in response to rising external uncertainties, particularly due to the ongoing trade tensions with the U.S. In his work report, Premier Li also announced an increase in China’s budget deficit to 4% of GDP, the highest level in decades, as part of a broader plan to counteract the effects of U.S. tariffs.
Government Plans to Increase Infrastructure Investment and Consumer Subsidies
To stimulate the economy, China plans to ramp up spending, including a 25% increase in the quota for government bond issuance, which will total 6.2 trillion yuan ($855 billion). Local governments will utilize special bonds for infrastructure projects, while central authorities will earmark around 300 billion yuan ($41 billion) for consumer subsidies, including a popular trade-in program for cars and electronics.
Reviving Private Enterprises Amid Regulatory Challenges
The success of China’s technological innovation efforts will depend on the revival of private entrepreneurship, which is crucial to driving economic growth and technological advancement. Recently, President Xi Jinping emphasized the importance of private companies in driving China’s economic future, calling on them to fully leverage their capabilities.
Private businesses, which contribute over 60% of China’s GDP and more than 80% of employment, are slowly recovering from a three-year regulatory crackdown. The introduction of the Private Economy Promotion Law, which is set to be discussed during the current political meetings, aims to provide stronger legal protection for private enterprises. Yang Decai, a member of an advisory body to the legislature, noted that the law would address key concerns, such as property rights and fair competition, thereby boosting confidence among private entrepreneurs and supporting China’s economic stability.
As China braces for further technological restrictions from the United States, the government’s focus on fostering innovation, expanding domestic consumption, and supporting private enterprises will be crucial for the country’s continued economic growth and competitiveness on the global stage.
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