China’s leading tech companies double AI spending despite US sanctions

China's leading tech companies have significantly increased their capital spending this year, focusing heavily on artificial intelligence infrastructure despite ongoing U.S. sanctions aimed at curbing China's progress in this critical sector.

Alibaba, Tencent and Baidu had combined capital expenditure of Rmb50bn ($7bn) in the first half, compared with Rmb23bn a year earlier, News.Az reports citing Financial Times.

The groups said the focus was on buying processors and infrastructure related to powering the training of large language models for AI, both their own models and those of others.

TikTok parent ByteDance has also increased AI-related spending, backed by a cash pile of more than $50bn and with the benefit of being privately held and relatively free of investor scrutiny, according to two people familiar with the matter.

“We’ll continue to invest in R&D and AI capex to ensure the growth of our AI-driven cloud business,” Alibaba chief Eddie Wu told investors this month. “It’s simply because we see a lot of unmet demand from many clients.”

Alibaba is buying processors to train its Tongyi series of AI models and rent out computing power to others. The Chinese tech giant’s capex in the first half totalled Rmb23bn, up 123 per cent from a year earlier.

“What we see when we’re making these kind of capex investments, as soon as we get a server up, that server is essentially instantly running at full capacity,” Wu said. “We can expect to see a very high ROI [return on investment] over these next quarters.”

Sales for the group’s cloud business accelerated during the second quarter, rising 6 per cent from a year earlier. Alibaba said AI related product revenues had more than doubled year on year.

The spurt is in part being driven by investments in Chinese AI start-ups structured to bring in customers. Just under half of the $800mn it put into AI start-up Moonshot in February came in the form of vouchers to buy its cloud services.

While US export controls are cutting off access to Nvidia’s leading AI processors such as the H100 and upcoming Blackwell series, China’s tech giants can buy lower-performance processors such as Nvidia’s H20, which was designed not to exceed computing power thresholds set by Washington.

News.Az