Commentary: How AI Could Revolutionize China’s Financial Sector

China's global competitiveness in artificial intelligence (AI) is fueling the high-quality development of its financial sector. Achieving such development requires a focus on innovation, openness, green growth, coordination, and sharing. China's financial industry, particularly the integration of AI with finance, has progressed swiftly, transitioning from traditional AI applications like customer service and data analysis before 2023 to the adoption of advanced generative AI models. A supportive environment comprising robust economic growth, government prioritization, proactive state-owned institutions, and consumer openness to data sharing has underpinned the rapid advancement of digital finance. With relatively underdeveloped legacy financial systems, China's digital financial services face minimal resistance, resulting in high market penetration. Regulators’ periodic support has further created a favorable environment for digital innovation. [para. 1][para. 2][para. 3][para. 4][para. 5][para. 6][para. 7][para. 8]

Industrial innovation in China now matches or even exceeds that in the financial sector, fostering new sources of funding beyond traditional bank loans. Corporate Venture Capital (CVC) has become more prominent, especially in AI and cutting-edge fields: 55-73% of AI unicorns globally have received CVC investment, compared to around one-third in traditional sectors. Strategic, long-term investments from major Chinese corporations such as Meituan, Alibaba, Tencent, and CATL illustrate this trend, reducing dependence on short-term returns or capital market fluctuations. Government Venture Capital (GVC) has also expanded, with over 2,000 government-guided funds and state-backed funds exceeding 1.5 trillion yuan (about $208.3 billion). State-owned capital constitutes more than 75% of the funding, facilitating riskier and earlier-stage technology investments, including policies that tolerate 100% loss on single high-tech projects. Overseas investors are increasingly engaged, with Chinese technology firms raising $44.8 billion in overseas markets in 2024, more than double the previous year's figure, reflecting China's rising global technology influence. [para. 9][para. 10][para. 11][para. 12][para. 13]

These diverse funding routes offer domestic tech companies choices but challenge China’s own venture capital and financial markets to maintain competitive appeal. Major banks are establishing new investment funds but face challenges in identifying promising tech innovators. Applying AI, especially large-scale models, can enhance the banks’ capacity to forecast technologies, assess commercial prospects, and analyze competitive landscapes. [para. 14]

Shanghai stands at the forefront of financial openness. Initiatives like “Bond Connect,” which links China’s bond market with Hong Kong’s international trading platforms, have significantly increased foreign investor participation—from 28.8% of new entrants in 2017 to 50.7% by 2023—by making market entry technically and institutionally easier for overseas investors. [para. 15]

AI-driven consumer finance, powered by big data and automation, enables personalized services and risk controls, expanding access to underserved populations. For example, Mashang Consumer Finance issues micro-loans with high efficiency and accuracy, processing over 10 million transactions daily, and relying on automated decision-making 90% of the time. This inclusive approach lowers thresholds for loans and enables support for small businesses and ordinary consumers. [para. 16][para. 17]

The rapid development of fintech brings inherent risks—such as strategy homogeneity, correlated trading, and amplified herd behavior via digital networks—which can destabilize financial markets. Balancing innovation with effective risk prevention remains a perpetual global challenge; responsible scrutiny and risk transfer mechanisms are essential to avoid harmful or reckless financial innovations. [para. 18]

Overall, China’s “AI+Finance” sector is internationally advanced. Continued progress depends on AI’s ability to enhance insight, foresight, inclusion, and system-wide coordination, ensuring that finance can support China’s innovative, green, open, and inclusive development goals.[para. 19][para. 20][para. 21]