J.P. Morgan Private Bank has raised questions about the potential of artificial intelligence (AI) to drive economic growth in China, as the nation navigates a shifting landscape of declining traditional sectors such as real estate. With the country at a pivotal moment following decades of reform and market opening since the 1980s, the research report authored by Tim Fung, head of equity strategy Asia, suggests that the rise of AI could be a transformative force for the Chinese economy.
China’s historical economic drivers have included mass manufacturing, exports, and real estate, but current geopolitical tensions and a burgeoning middle class are causing these sectors to wane. In light of these challenges, the report asks, “With traditional growth drivers likely taking a back seat, can China capitalize on the global AI wave to derive another driver for the economy?” The answer appears to be complex. While J.P. Morgan sees promising opportunities for China’s AI sector, it also notes that the scale of this industry pales in comparison to the United States, where technology spending constitutes a significant portion of economic growth.
The report highlights that value in the AI sphere is expected to concentrate within specific sectors and companies through 2026, rather than being broadly distributed across the economy. Among the primary beneficiaries identified are hyperscaler cloud providers and enterprise platforms that are making substantial investments in AI-ready data centers and advanced computing capabilities. By 2026, industry-wide capital expenditures on AI and cloud services in China are projected to reach $70 billion, aligning with just 15–20 percent of U.S. hyperscaler spending. This figure underscores China’s strategic focus on building foundational layers for generative AI and large-scale machine learning.
Furthermore, advancements in domestic AI semiconductor solutions are gaining traction, driven by government policies that prioritize localization and subsidies to encourage the development of home-grown infrastructure. Fung remarked, “For now, China’s AI industry is starting to enter a transformative phase, driven by accelerated infrastructure investment and ecosystem development.”
On the monetization front, the report emphasizes that China is rapidly scaling AI applications across consumer and enterprise domains. Generative tools are increasingly being integrated into search engines, social media platforms, and productivity applications, facilitating new engagement models and revenue streams. Moreover, businesses are adopting AI-driven solutions for process automation, coding, predictive analytics, and customer interactions. This growing adoption is forecasted to propel cloud AI revenue to nearly $90 billion by 2030, with a compound annual growth rate (CAGR) of 45 percent over the next six years.
Fung added that optimization and cost efficiency are top priorities for industry players, who are deploying advanced resource pooling and algorithmic improvements to manage rising computing expenses. While near-term profitability may face headwinds due to high investment cycles, these structural shifts indicate China’s ambition to lead in both AI infrastructure and applications. This ambition sets the stage for sustained economic growth through 2026 and beyond, even as traditional sectors recede.
