As artificial intelligence (AI) rapidly transitions from laboratories to practical applications in factories, hospitals, and supply chains, Chinese policymakers are strategic in their ambition to cultivate a “smart economy.” During this year’s “two sessions” of China’s top legislative and advisory bodies, the government work report, presented for deliberation last week, for the first time emphasized the creation of new forms of a “smart economy.”
Analysts note that this shift indicates that AI has evolved beyond merely enhancing efficiency; it is now viewed as a catalyst for a new phase of economic development. The latest report reflects a significant evolution in policy thinking. In 2024, the government introduced the “AI Plus” initiative, advocating for its continued development in 2025, and now frames AI as a critical engine for broader economic transformation.
Zhou Li’an, a member of the 14th National Committee of the Chinese People’s Political Consultative Conference and a professor at Peking University’s Guanghua School of Management, explained that the term “smart economy” signifies a profound change in how AI is perceived within government policy. “The idea of a smart economy suggests that AI itself is increasingly becoming a foundational element of the economic system, shaping how resources are allocated, industries organized, and services delivered,” he said.
In practical terms, this year’s report outlines the path for this transformation. It advocates for the accelerated deployment of new-generation intelligent terminals and AI agents, alongside large-scale commercial applications in key sectors. There is an emphasis on fostering innovative AI-native business models, strengthening open-source AI ecosystems, and improving national coordination of computing power. Moreover, developing hyper-scale intelligent computing clusters, alongside infrastructure advancements such as satellite internet and upgraded 5G Plus Industrial Internet Initiative, also feature prominently.
These initiatives indicate that China’s AI strategy is progressing into a more comprehensive phase. Instead of focusing solely on technological breakthroughs, policymakers are now prioritizing the integration of AI into the real economy — spanning areas from manufacturing and agriculture to public services and consumer markets. This pivot is further supported by the draft outline of the 15th Five-Year Plan (2026-2030), which calls for advancements in multimodal systems, AI agents, embodied AI, and swarm intelligence.
The rationale behind these policies is clear. The “smart economy” represents the next evolutionary stage of the digital economy. While digitalization focuses on constructing networks, platforms, and data flows, AI introduces systems capable of perception, decision-making, and autonomous action. Simply put, if digital infrastructure serves as the “nervous system” of the modern economy, AI functions as its “brain.”
This emphasis on scale is reflected in both the government work report and the draft outline of the five-year plan, which stress commercialization and large-scale deployment. China’s abundant data resources, comprehensive industrial system, and diverse application scenarios create favorable conditions for developing a “smart economy.” A defining feature of this approach is a focus on intelligent terminals and AI agents, as much of the global AI conversation has revolved around large models.
For businesses, significant opportunities lie within vertical applications, particularly in manufacturing. Qian Gang, board chairman of CITIC Pacific Special Steel Group and a national political advisor, revealed that the company has developed over 100 AI vertical models to enhance intelligent manufacturing, transforming one of its plants into the first “lighthouse factory” in the global special-steel industry. Such factories exemplify the integration of cutting-edge technology for transformative business and societal benefits.
Across industries in China, similar innovations are emerging. Experts assert that the country’s ability to blend extensive manufacturing capacity with expanding AI capabilities positions it to translate technological advancements into substantial industrial value. “AI is now transitioning from a decision-supporting ‘copilot’ to an autonomous, outcome-delivering ‘agent,’ as the industry moves from a phase of explosive technological growth into one of value realization,” remarked Jia Shaoqian, chairman of Hisense Group and a deputy to the 14th National People’s Congress.
Infrastructure is critical for the swift spread of these applications. The operation of advanced AI systems requires significant computing resources and a reliable energy supply. The government report underscores the importance of constructing hyper-scale intelligent computing clusters and enhancing the synergy between computing and electricity systems. This strategy aligns with China’s efforts to optimize its digital and energy resources. While demand for computing is surging in major economic hubs, many inland regions offer abundant renewable energy. Connecting computing infrastructure with these energy resources can help reduce costs and boost efficiency, supporting the sustainable growth of the AI industry.
As China pushes forward with the “smart economy,” there is a heightened focus on AI governance, highlighted in both the government work report and the draft outline of the five-year plan. With AI systems increasingly adept at managing complex tasks and facilitating automated decision-making, the need for robust governance frameworks concerning data security, privacy protection, and algorithm oversight is paramount.
The report advocates for improvements in AI governance, while the five-year plan emphasizes bolstering international dialogue and cooperation on AI. It seeks to accelerate the establishment of an open-source technology ecosystem with global reach, encouraging deeper collaboration in sectors such as e-commerce, mobile payments, and smart-city development. As of 2025, China’s core AI industry was valued at more than 1.2 trillion yuan (approximately 174 billion U.S. dollars) and included over 6,200 AI companies, according to Minister of Industry and Information Technology Li Lecheng.
He stressed that AI should ultimately “serve people, benefit people and remain under human control” and act as a shared global public good. National legislator and tech expert Zhou Di echoed this sentiment, suggesting that challenges such as technological barriers, cross-border data flows, and ethical governance necessitate enhanced international cooperation to ensure that the benefits of technological advancements are shared broadly and help address global challenges.
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