(July 20): A global rush to build out artificial intelligence (AI) infrastructure has turned the technology into a key pocket of growth in China’s economy during one of its weakest stretches in years.

Electronics and information technology contributed over half of the economy’s expansion in April-June on a quarter-on-quarter basis, according to Capital Economics. Earlier estimates from China International Capital Corp showed AI-related exports alone accounted for 1.1 percentage points in the growth of nominal gross domestic product (GDP) during the first four months, nearly triple their share for the full year of 2025.

“The emergence of AI as the new engine of Chinese growth could prove to be a key source of economic resilience over the rest of the year and into 2027,” said Julian Evans-Pritchard of Capital Economics. At the same time, such AI-driven growth “alone is no panacea for China’s wider economic challenges”, and could leave the country exposed if the AI investment boom stalls, he added in a report.

The technology has abruptly gone from near irrelevance to economic dominance as hundreds of billions of dollars flow into the buildout of data centres in the US, driving up prices and demand for hardware made by the world’s manufacturing powerhouse. Roughly a quarter of the AI spending in the US leaks offshore, according to Bloomberg Economics, lifting trade across Asia.

And as new models released by Chinese start-ups rattle markets, AI is also fast moving to the front of the policy agenda, with President Xi Jinping looking to shape the technology’s global rules and assert influence through a new group of nearly 30 countries.

AI’s imprint on growth looms especially large for China as its economy sputters. 

When it reported weaker-than-expected growth in the second quarter, industries related to AI stood in contrast to sectors such as construction, which has been a drag since the collapse of housing prices. Electronics and information technology contributed 1.4 percentage points to last quarter’s GDP expansion, Capital Economics said, representing roughly a third of the overall 4.3% gain in year-on-year terms.

Bloomberg Economics estimates that high-tech and green industries could account for about a fifth of GDP this year, putting them on track to surpass property-related sectors for the first time.

The boom in China is playing out differently from the US, where soaring spending on data centres accounted for over a quarter of GDP growth last year — and possibly even more. 

Whereas in the US the impact filters through the domestic economy mostly by way of direct AI-related capital expenditures, China is also experiencing a huge boost to its vast industrial base.

AI-related industries now account for about 17% of GDP, Liu Qiao, a finance professor at Peking University who advises the government, said during an event in Beijing last Friday.

Goldman Sachs Group Inc analysts identified more than 3,000 Chinese companies embedded in a long AI value chain. The list includes those involved in power generation and equipment, the making of semiconductors and other hardware for data centres, as well as AI software and AI-powered applications such as autonomous driving. 

Chinese firms account for 16% of AI-related revenues worldwide, according to the Goldman report published earlier this year.

The standout performance of AI-related industries has also been a reminder of the challenges faced by the rest of the world’s second-biggest economy. 

While nationwide industrial output rose only 5% in the first half from a year ago, the output of electronics manufacturers jumped 15%. And in another stark example of the divergence in growth, their capital spending climbed 7% even as fixed-asset investment overall extended its historic 6% contraction during the period. 

Uploaded by Tham Yek Lee