Shanghai has announced a subsidy initiative totaling 1 billion yuan (US$139 million) to support its AI sector.

This program is designed to assist startups and promote the adoption of AI technologies by local businesses.

The subsidy package includes 600 million yuan for computing power, 300 million yuan for discounts on third-party AI models, and 100 million yuan to help companies acquire data collections for training models.

Additionally, companies may receive extra subsidies of 10% to 100% of contract values for renting, purchasing, or constructing computing facilities, AI models, and datasets.

The Shanghai Municipal Commission of Economy and Informatization detailed the plan, saying it aims to reduce operational costs for companies and enhance Shanghai’s competitiveness in the AI industry.

The city faces challenges, including high operating expenses, which have prompted some start-ups to relocate to more affordable cities like Hangzhou.

Shanghai’s initiative arises amid increasing competition from other Chinese cities, including Hangzhou, Shenzhen, Chengdu, and Beijing, which have introduced similar subsidy programs to attract AI firms.

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🔗 Source: South China Morning Post

🧠 Food for thought

1️⃣ Computing infrastructure emerges as the primary bottleneck for AI development

Shanghai’s subsidy allocation reveals where Chinese AI companies face their biggest cost barriers.

The program dedicates 600 million yuan to computing power subsidies, more than double the 300 million allocated for AI model access and six times the 100 million for data procurement 1.

This distribution suggests that computational infrastructure represents the most significant financial obstacle for AI startups and businesses looking to adopt AI solutions.

The emphasis on computing power subsidies aligns with the reality that training and running AI models requires substantial computational resources, which can be prohibitively expensive for smaller companies without the scale economies that large tech firms enjoy.

By directly addressing these infrastructure costs with subsidy rates ranging from 10 to 100 percent of contract value, Shanghai is removing the primary economic barrier that prevents many companies from experimenting with or scaling AI applications 1.

2️⃣ Chinese cities are using direct cost reduction to compete for AI dominance

Shanghai’s approach reflects a broader pattern of Chinese municipal governments using aggressive subsidies to build competitive AI ecosystems.

The city joins Hangzhou, Shenzhen, Chengdu, and Beijing in offering substantial support measures to attract AI companies, creating a competitive subsidy environment across China’s major metropolitan areas 1.

This municipal competition addresses a specific challenge Shanghai faces: despite its strong funding environment and global outlook, high operating costs often drive AI startups to cheaper alternatives like nearby Hangzhou 1.

Expert Pan Helin notes that Shanghai’s “key advantage in AI development is its strong funding,” but the city’s expensive real estate and operational costs can offset this benefit for cost-sensitive startups 1.

The direct cost-reduction strategy represents a pragmatic response to this competitive disadvantage, allowing Shanghai to leverage its financial sector strength while neutralizing its cost disadvantage through government intervention.

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