Invesco an alternative model chinas low cost AI strategy july 2026

An alternative model: China’s low-cost AI strategy

China is emerging as a significant player in artificial intelligence, in 1 our view, with cheap models and growing market share.

Years of export controls have helped jumpstart a nascent 2 advanced semiconductor industry in China, which we expect to grow in importance.

Low-cost, open-source models produced by China are becoming 3 increasingly capable and may help drive faster enterprise adoption in China.

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An alternative model: China’s low-cost AI strategy

A different path to being an AI leader In January 2025, China commanded attention in the artificial intelligence (AI) race with the announcement of DeepSeek’s R1 model, rekindling enthusiasm for Chinese technology stocks and China's AI ambitions. Yet, since then, Chinese markets have largely taken a backseat in the AI investment story as American players spent heavily on new models and data centers to power them. Meanwhile, the supply chain Ashley Oerth, CFA® exposed to these investment flows has created winners in select Asian markets, Senior Investment Strategist, particularly in Taiwan and Korea (see Figure 1). Strategy & Insights On the surface, it appears the market has gauged that China is not the obvious destination for AI-related investment capital. Its most advanced semiconductor foundries are two to three generations behind the frontier, while US-led export controls have restricted access to the most advanced chips. In addition, Chinese AI firms spend a fraction of what US hyperscalers deploy (see Figure 2). By most headline public benchmarks, many Chinese models also trail the leading US models—even if the gap has narrowed materially.1 In short, the market has tended to view China as lagging where investors have so far placed the highest premium in the AI trade: the semiconductor supply chain, large-scale frontier data centers, and model leadership. We argue here that China’s position in the AI race should be rethought. Domestically, China Thomas Wu is working towards a differentiated AI strategy focused on minimizing the cost of deployment Investment Strategist, across the economy through a combination of open-source and highly efficient models. We Strategy & Insights think this is driven in large part by US-led export restrictions designed to slow China’s progress in AI. We anticipate that these low-cost models will help facilitate rapid diffusion and adoption of the technology. Meanwhile, China appears to be expanding its role in building and outfitting data centres.…