US and China pour record capital into AI as funding race intensifies on both sides

The artificial intelligence sectors in both the United States and China are being flooded with unprecedented capital. However, the AI funding is now becoming a competition between the two largest economies. 

Global AI startups raised $255.5 billion in Q1 2026 alone. Meanwhile, Chinese AI ventures separately pulled in over 110 billion yuan ($16.2 billion).

How is the Chinese government fueling the AI boom? 

Pan Xiaodong, the secretary general of the Ministry of Science and Technology, made some huge announcements at a Beijing press conference back in February. He mentioned that the Chinese government had launched a national venture capital guidance fund. It focuses on early-stage, small, long-term, and hard-tech enterprises. This includes AI, semiconductors, and advanced manufacturing. The estimated total scale of the fund is around 1 trillion yuan ($144.45 billion).

Investors linked to the Chinese government reportedly participated in more than 140 AI deals in 2025. It is a huge jump compared to the 10 deals per year seen before 2018. The authority has also joined hands with financial institutions and local governments. This is done to establish various funds totaling over 350 billion yuan. This includes tech-industry integration funds and secondary market funds.

DeepSeek will reportedly have its first outside investment round led by China’s Integrated Circuit Industry Investment Fund (the “Big Fund”). The AI company came into the light for its cost-efficient models. The startup’s valuation surged from $10 billion to $20 billion in April. It later reached an estimated $45-$50 billion by early May. 

Other investment rounds backed by the government include Moore Threads, a Beijing-based GPU designer, which raised $720 million at a $4.1 billion valuation in February 2025. Moonshot AI secured $700 million at a $10 billion valuation in January 2026, while StepFun reportedly raised $717 million.

Linkerbot, a robotic-hand startup, is targeting a $6 billion valuation backed by Ant Group and Bank of China Asset Management, while Unitree Robotics has filed for a Shanghai listing seeking up to $7 billion.

The US and China are protecting their industries from outside influence

Washington banned American investors from backing Chinese AI and chip companies back in January 2025. In late April, China applied its own version of the same restriction. The National Development and Reform Commission instructed Moonshot AI, StepFun, and ByteDance not to accept US capital without explicit government clearance after Meta acquired Manus for $2 billion. 

Cryptopolitan previously reported that the Trump administration accused Chinese labs of “industrial-scale” distillation of American AI models. Distillation is a method where a developer uses data from a larger AI model to train a smaller one. 

The White House memo outlined four measures to stop this, including sharing intelligence on distillation tactics and coordinating defenses with US AI companies.

Anthropic also previously accused DeepSeek, Moonshot AI, and MiniMax of exploiting its models. 

Despite the tensions, the total deal activity for the Chinese private equity market reached 2,568 transactions worth 234.4 billion yuan in Q1 2026, and foreign-currency deals in China more than doubled year-on-year to 210 in the same period. The disclosed investment value jumped by 495% to 67.3 billion yuan ($9.9 billion). 

In the US, investments from the first quarter of 2026 surpassed the $254.4 billion deployed across all of 2025. OpenAI, Anthropic, and xAI accounted for more than two-thirds of the total.

Despite the differences in the US and Chinese governments’ approaches, they are both producing results. Chinese large-model companies have shortened iteration cycles to under three months by 2026, and a Stanford University report suggested that the performance gap between top US and Chinese AI models has “effectively closed.”

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