FOREIGN POLICY

Investing in intelligence :
China’s AI ambitions and Europe’s cautious counterplay

Artificial intelligence (AI) has become a cornerstone of China’s economic strategy, with billions of dollars invested in research, development and global expansion. Beijing aims for dominance in AI technologies, driving not only domestic economic growth but also reshaping global trade and investment relations, from African markets to Asian alliances.

by Pejo Bosnić
Oct. 28, 2025

By blending robust state intervention with private innovation, China envisions AI integration into 90% of its economy by 2030, generating significant multiplier effects on GDP. This strategy enhances productivity and strengthens strategic sectors like defense. In contrast, Europe grapples with a fragmented market and stringent regulations, slowing its AI progress. This article examines China’s AI ecosystem, its global investment reach, its role in defense and its challenges, alongside a comparison with Europe’s efforts. Can the EU bridge the gap in this race, or will China’s AI capital redefine the global economy?

China’s AI ecosystem: state strategy and private giants
China’s AI ecosystem is built on a sophisticated blend of state planning and market dynamics, with the government orchestrating resources for maximum efficiency. Through a National AI Fund worth $8.2 billion, China supports research and commercialization, fostering public-private partnerships that could contribute 26% to GDP growth by 2030. The private sector, led by giants like Baidu and Tencent, invests heavily in advanced algorithms for image recognition and natural language processing, enabling rapid AI integration into e-commerce, finance and healthcare. However, this model carries risks of centralization, where innovations often align with national priorities rather than purely market-driven needs. With 83% public approval of AI, China is positioning itself as a global leader in technology adoption, creating a robust foundation for economic growth and international competitiveness. This ecosystem underscores China’s strategic ambition to dominate the AI-driven economic landscape.

The investment wave: global reach of Chinese AI capital
China’s AI investment wave extends beyond domestic borders, exerting strategic influence on the global economy through infrastructure and partnerships. In 2025, China is constructing over 250 AI data centers, targeting a computing power of 105 EFLOPS to support both domestic growth and technology exports. These investments, funded by a mix of venture capital and state funds, are estimated to be worth tens of billions, with AI expected to add $600 billion annually to China’s GDP by 2030. Globally, Chinese capital flows into Africa and Southeast Asia, financing AI projects for smart cities and digital infrastructure, often through initiatives like the Digital Silk Road. This expands influence and creates dependencies on Chinese technologies, bolstering Beijing’s trade balances. Yet, a decline in venture capital in 2025 highlights risks of concentration among major players, potentially undermining long-term sustainability and diversification.

Defense and challenges: strategic frontiers and global tensions
In the defense sector, Chinese AI investments enable advancements in autonomous systems and cybersecurity, integrating technology into strategic operations. A 7.2% increase in the defense budget in 2025 supports these efforts, promoting dual-use technologies that stimulate the broader AI sector and contribute to economic growth. However, this expansion faces challenges: ethical concerns over data surveillance, risks of cyber conflicts and trade tensions with other nations limit international cooperation. Limited access to high-quality data and talent further complicates progress, while sanctions amplify economic risks. These challenges are not unique to China but reflect broader tensions in the global AI race, where economic benefits must be balanced against security and ethical considerations, impacting trade balances and investment strategies.

Europe’s response: innovation vs. regulation
Europe lags behind China due to a cautious approach to AI development, constrained by stringent regulations like the AI Act, which emphasizes ethics and transparency. While China develops 15 large-scale AI models annually, the EU launched only three in 2025, limited by a fragmented market and lower infrastructure investment. This gap reduces AI’s contribution to Europe’s GDP, with adoption rates below 70%. However, Europe’s focus on trustworthy AI and collaboration with partners like the US offers advantages in avoiding reliance on foreign technologies. Without significant investments in talent and data centers, the EU risks becoming a consumer rather than a producer of AI technologies, weakening its global competitiveness and macroeconomic indicators compared to China’s model.

Conclusion: The global AI economy
China’s AI ambitions, fueled by massive investments and strategic integration, position Beijing as a leader in shaping the global economy. By leveraging AI to drive GDP growth, enhance trade balances through initiatives like the Digital Silk Road and strengthen geopolitical influence, China is redefining global value chains. However, ethical dilemmas around data privacy, coupled with geopolitical tensions such as trade disputes and sanctions, underscore the need for a balanced approach to sustain long-term growth. Europe, with its regulatory focus, can draw lessons from China’s aggressive investment model but must accelerate innovation to close the gap. Without cohesive strategies and increased funding, the EU risks diminished trade competitiveness and macroeconomic stability, potentially ceding leadership to China. This AI race will reshape economic indicators like GDP, export shares and investment flows while redefining power dynamics. For economists and policymakers, the challenge lies in navigating these tensions to foster sustainable growth. A collaborative global framework, balancing innovation with ethical and economic priorities, could mitigate risks of monopolization and ensure equitable development, but it requires bold action from all players to avoid a fragmented, zero-sum outcome.