J.P. Morgan PB: Can AI Power Economic Growth in China?
Traditional leaders of economic contributions in China, such as real estate, have seen their heyday and are shrinking. J.P. Morgan Private Bank explores if AI wll be able to take over and make waves.
Since the 1980s when China decided to reform and open up its markets, a handful of sectors have dominated growth, most notably in mass manufacturing, exports and real estate. But the nation is now at a crossroads, with geopolitics affecting trade relations and a growing middle class reshaping labor. Consequently, there are questions about the future of the economy and one area that has captured the spotlight is artificial intelligence (AI).
«With traditional growth drivers likely taking a back seat, can China capitalize on the global AI wave to derive another driver for the economy?» questioned a research report by Tim Fung, head of equity strategy Asia at J.P. Morgan Private Bank.
«While we see exciting prospects for China’s AI buildout, the relative scale of this sector is still dwarfed by the US, where tech-related spending is contributing to a majority of economic growth. Value is more likely to accrue to a select group of sectors and companies rather than broadly across the economy, at least for 2026.»
Top Beneficiaries: Hyperscalers and Semiconductors
In terms of top beneficiaries, the report named hyperscaler cloud providers and enterprise platforms which are committing significant capital to AI-ready data centers, advanced computing clusters and model training capabilities. At a projected $70 billion in 2026, industry-wide AI and cloud capex is equivalent to only 15–20 percent of US hyperscaler spending, but this is still «underscoring China’s strategic push to build foundational layers for generative AI and large-scale machine learning».
The bank also highlighted advancements in domestic AI semiconductor solutions as localization remains a key policy directive and subsidies incentivize the use of key home-grown AI infrastructure.
«For now, China’s AI industry is starting to enter a transformative phase, driven by accelerated infrastructure investment and ecosystem development,» Fung said.
Monetization: Scaling Applications
And on the monetization front, the report said that the Chinese market is rapidly scaling AI applications across consumer and enterprise domains.
Generative tools are being embedded in search, social platforms, and productivity suites to create new and higher engagement models and revenue streams. Enterprises are increasingly adopting AI-driven solutions for process automation, coding, predictive analytics, and customer interaction. Cloud AI revenue is expected to accelerate and remain elevated at a 45 percent 6-year CAGR to reach nearly $90 billion by 2030.
«Meanwhile, optimization and cost efficiency remain top priorities, with industry players deploying advanced resource pooling and algorithmic improvements to manage rising compute costs,» Fung added. «While near-term profitability may be pressured by the elevated investment cycles, these structural shifts reinforce China’s ambition to lead in AI infrastructure and applications, setting the stage for sustained growth through 2026 and beyond.»
