China’s tech giants have doubled their investment in AI infrastructure this year, despite US sanctions aimed at limiting the country’s progress in the vital technology, the Financial Times (FT) reports.
Alibaba, Tencent and Baidu spent 50 billion renminbi ($7 billion) on capital expenditure in the first half of the year, compared with 23 billion renminbi a year ago. The groups said they focused on buying processors and infrastructure related to powering the training of large language models for artificial intelligence, both their own models and those of others.
TikTok’s parent company ByteDance has also increased its AI-related spending, with an investment of more than $50 billion, according to two people familiar with the matter.
“We will continue to invest in R&D and AI to drive the growth of our AI-driven cloud business. This is because we see a lot of unmet demand from many customers,’ Alibaba chairman Eddie Wu told investors this month.
Alibaba buys processors to train its Tongyi series of AI models, and then leases the computing power to others. The Chinese tech giant’s first-half capital expenditure reached 23 billion renminbi, up 123 per cent year-on-year.
Nvidia not selling its high-tech AI processors
What we’ve seen when we make these kinds of investments is that as soon as we put a server online, it’s immediately running at full capacity,’ Wu said. We can expect a very high ROI [return on investment] in the coming quarters,’ Wu said.
Revenue from the group’s cloud business accelerated in the second quarter, rising 6 per cent year-on-year. Alibaba said revenue from AI-related products more than doubled year-on-year.
The increase was partly due to investments made to attract customers to Chinese artificial intelligence startups. Just under half of the $800m it invested in AI startup Moonshot in February came in the form of vouchers to buy cloud services.
While US export controls cut off access to Nvidia’s leading AI processors, such as the H100 and the forthcoming Blackwell series, China’s tech giants can buy less powerful processors, such as Nvidia’s H20, which is designed not to exceed the computing power thresholds set by Washington.
ByteDance is one of Nvidia’s biggest customers
Analysts expect Nvidia to ship more than a million processors to Chinese technology groups in the coming months at $12,000 to $13,000 each. ByteDance is also an important customer, according to two people familiar with the matter.
Dylan Patel of chip research group SemiAnalysis estimates that TikTok’s parent company has bought hundreds of thousands of H20s for data centres in China, while also spending heavily on working with partners and setting up computing infrastructure in Johor, Malaysia.
ByteDance is China’s biggest AI buyer because they are investing heavily in China and Malaysia and buying from US clouds,” Patel said.
Social media and gaming giant Tencent also said its capital expenditure rose 176 per cent year-on-year to 23 billion renminbi in the first six months, partly ‘driven by investment in GPU and CPU servers’.
Chinese investment still far behind US
James Mitchell, head of strategy, said the cloud business was benefiting from the growing need to rent GPUs, but on a smaller scale than the boom experienced by its US rivals.
There are not a lot of extremely well-funded startups in China trying to build large speech models on their own. There are a lot of small companies, but their capital is $1 billion, $2 billion. They don’t have $10 billion or $90 billion of capital like in the US,” he said.
A person familiar with Tencent’s investment strategy said it was writing smaller cheques for AI groups because of lingering concerns about Beijing’s regulatory stance.
Baidu, China’s long-time AI leader, was the most restrained in its investment spending, spending 4.2 billion renminbi in the first half, up 4 per cent from a year earlier.
Overall, China’s big tech investment still lags far behind its American counterparts. Alphabet, Amazon, Meta and Microsoft spent $106 billion in the first half and have pledged to invest more in the coming months.
