- State-backed financing gives Chinese companies significant operational advantages
- Lower cost AI models from China appeal to developing countries worldwide
- Microsoft is investing billions to strengthen AI tools and infrastructure globally
Microsoft President Brad Smith has warned US technology companies may face growing challenges from Chinese competitors that benefit from significant government subsidies.
Beijing has provided multibillion-dollar subsidies, including a national AI fund and energy vouchers, to reduce operating costs for domestic companies.
Smith compared the situation to China’s past success in telecommunications, noting how state-backed companies such as Huawei and ZTE disrupted the global market and pressured European and American companies.
Increasing competition is driven by state aid
“I think we always have to think about, maybe even worry a little bit about, Chinese subsidies. Some American companies disappeared. European companies like Ericsson and Nokia were put on the defensive,” Smith told CNBC.
“I think for the rest of us, we have to compete with it, and we have to be good at competing with it, with the support of our governments.”
He also emphasized that similar strategies could make cheaper AI offerings from Chinese companies attractive in developing countries, where affordability is often key.
Chinese AI companies have rapidly expanded their international presence, often relying on partnerships rather than building wholly owned data centers outside of China.
Alibaba, for example, provides cloud-based AI services across multiple regions, but often partners with local infrastructure providers.
Smith pointed out that existing Chinese data centers around the world could be leveraged with government support, giving Chinese companies a potential cost advantage in implementing AI models at scale.
China’s approach includes both direct funding and operational incentives — a national AI fund worth about $8.4 billion was established to support early-stage projects, while local governments provide vouchers to reduce computing costs.
Low energy prices in many Chinese regions further reduce barriers to building and operating power-intensive AI infrastructure.
These measures create a competitive landscape where US companies may face price pressures and restrictions in new markets.
Microsoft is responding with its own investment strategy that aims to spend $50 billion by 2030 on AI initiatives in developing countries, efforts that combine infrastructure development, training programs and support for AI tools designed to boost local productivity.
Smith argued that American companies must compete effectively while leveraging their advantages, including access to high-performance chips and advanced technology, to maintain influence in global AI markets.
Analysts suggest that Chinese artificial intelligence models could become dominant in regions with limited resources and form a “Chinese tech sphere” over the next five to ten years.
For governments and companies in developing countries, cost-effectiveness may outweigh national origin when choosing AI tools.
Microsoft’s response involves deploying artificial intelligence and productivity tools that are scalable, reliable and capable of operating in the same environments targeted by Chinese competitors.
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