Chinese AI Startup Baichuan Raises $691M Amid Push to Boost Global Competitiveness

Baichuan, a Chinese AI startup backed by Alibaba and Tencent, has raised $691 million at a $2.8 billion valuation as China seeks to catch up on generative AI investment.

Key takeaways from the funding round: The new funding highlights China’s efforts to boost its global competitiveness in AI and shore up investment in the sector:

• The round included participation from major Chinese tech giants Alibaba, Tencent, and Xiaomi, as well as government entities from Beijing, Shanghai, and Shenzhen.
• This investment comes on the heels of China’s launch of the AI Plus initiative in March, which aims to further develop the country’s digital economy through policies encouraging AI investment and adoption.

China’s AI investment landscape: Despite recent efforts, venture capital investment in China’s AI sector has been relatively muted compared to global trends:

• So far in 2024, PitchBook data shows at least $4.4 billion invested in Chinese AI startups across 372 rounds, not including the Baichuan deal.
• AI investment in China has seen two consecutive years of decline in both deal volume and capital invested, after peaking in 2021 at $24.9 billion across 1,411 deals.
• The two largest Chinese AI rounds in 2024, accounting for over a third of total capital raised, also saw participation from Alibaba.

Global context and US-China rivalry: China’s push for AI investment occurs against the backdrop of intensifying technological competition with the United States:

• Restrictions on collaboration and investment between the two economies have positioned AI as another front in the growing US-China strategic rivalry.
• Despite recent efforts, Chinese VC investment still represents a relatively small share of global AI funding compared to the US and other major markets.
• In Q4 2023 alone, $22.3 billion was invested in AI startups globally, including a $2 billion round for US-based Anthropic led by Alphabet.

Looking ahead: As China seeks to bolster its position in the global AI race, several factors will shape the trajectory of its AI ecosystem:

• Government initiatives like AI Plus and the engagement of major tech players such as Alibaba and Tencent will play a crucial role in driving investment and innovation.
• However, the broader geopolitical tensions and regulatory challenges may continue to impact cross-border collaboration and investment flows in the AI sector.
• While China has made notable strides, closing the gap with the US and other AI leaders will require sustained investment, talent development, and a supportive policy environment in the years ahead.