Hong Kong
CNN
–
China’s top economic official, who has achieved new success from the global success of Deepseek’s latest artificial intelligence reasoning model, has vowed to establish a state support fund to support technological innovation.
The “Provincial Venture Capital Guidance Fund” will focus on leading areas such as artificial intelligence, quantum technology and hydrogen energy storage to Zheng Shanjie, head of state-of-the-art economic planner in China.
The fund is expected to attract nearly 1 trillion europes ($138 billion) from local governments and the private sector over two decades, added Zheng, chairman of the National Development and Reform Committee.
China’s leaders believe luxury chips, quantum computing, robotics and AI are important to drive economic growth and upgrade manufacturing. However, China faces pressure from US technology restrictions.
Zheng struck a rebellious tone at a press conference, celebrating the rapid development of China’s leading language models for microchips and AI, as well as industrial and humanoid robots.
“A scene that was once only seen in science fiction is becoming a reality. We are steadily moving towards the global frontier of technology and innovation,” Zheng said. “This proves that attempts to suppress and blockade by certain forces can help accelerate our desire to independent innovation,” he added in an obvious reference to the United States.
Deepseek, a privately owned company that has been shaking the global stock market when the R1’s leading language model was introduced in January, was able to roughly match the capabilities of its rivals, including Openai’s GPT-4, Meta’s Llama and Google’s Gemini, but that’s a small cost.
The US has surprised observers as it has worked for many years to limit the supply of high-power AI chips to China, citing national security concerns. In other words, DeepSeek appears to be able to achieve low-cost models with relatively low-power AI chips.
On Wednesday, Chinese Prime Minister Li Keqiang pledged to “promote future emerging industries and industries” when he submitted the government’s annual work report. Li has committed to establishing mechanisms to increase funding for industries such as biomanufacturing, quantum technology, embodied AI and 6G technology.
After prioritizing years of innovation over domestic demand, Chinese leaders are beginning to show more commitment to strengthening consumption as their biggest policy agenda. The Chinese government will soon be releasing a “special action plan to promote consumption,” economic official Zheng said.
Despite pushing for the stimulus package last September, much of the country’s growth momentum was due to exports, which brought China’s trade surplus to a record high of just under $1 trillion. That strength has sparked the rage of President Donald Trump, and this week, US import tariffs doubled tariffs on Chinese goods to 20%.
According to investment bank Macquarie Group, China’s household consumption as a share of the country’s gross domestic product (GDP) was just 39% in 2023. This is comparable to 49% in South Korea, 55% in Japan, two Asian countries with already high savings rates, and 68% in the US.
“Beijing is determined to find strength from within amid increasing uncertainty on the outside. The HSBC economist led by Jing Liu wrote in a research note on Wednesday, saying that China is launching special actions to promote domestic consumption.”
As part of these efforts, China has raised its fiscal deficit to about 4% of its gross domestic product, Prime Minister Li said in his work report. This was the highest level in decades and was part of a plan to increase spending to combat the impact of US tariffs.
He also showed that the government’s bond issuance quota would increase by more than 25% from last year, split between local and central authorities, to 6.2 trillion yuan ($85.5 billion).
Special bonds issued by local governments will be used to support infrastructure investments and struggling housing markets, with central authorities allocated around 300 billion yuan ($41 billion) to spend on consumer subsidies on popular “cash-operator” trade programs for cars and home appliances.
The key to government success is whether Beijing can revive the “animal spirit” of private Chinese entrepreneurs who need to advance technological innovation as they prepare for more restrictions from the US.
Last month, Chinese leader Xi Jinping hosted the country’s top technology executives in the capital, declaring that it was “prime time” for private companies to “play fully in their abilities.”
Despite being war-held on the size of the national sector, private companies contribute more than 60% to China’s GDP and employment. But many companies, especially in the tech sector, have recovered after more than three years of strict restrictions.
According to Yang Decai, director of Nanjing University’s Institute of Private Economics and a member of the Congress’ Advisory Agency, the Private Economic Promotion Act, which will be discussed at the ongoing “two sessions” political meetings, ensures that businesses are legally supported and protected.
It “responds to some issues that the private sector is concerned about, such as property rights protection, fair competition, and more, very quickly and effectively,” he told journalists at the Beijing People’s Conference on Tuesday. “This has raised the trust and market expectations of private companies, which is extremely important for the stable growth of the Chinese economy.”
