^{Photo: Bloomberg.com}

Microsoft President Brad Smith cautioned that American technology companies need to remain vigilant about subsidies and support extended to Chinese competitors as the global AI race heats up. Speaking at the AI Impact Summit in New Delhi, Smith said U.S. firms should “worry a little bit” about the advantages Beijing provides its domestic tech giants.

Chinese Subsidies and the Global AI Race

Smith highlighted that Chinese companies benefit from multi-billion-dollar government initiatives, including the 60 billion yuan ($8.4 billion) national AI fund launched last year to accelerate early-stage AI projects. In addition, cities such as Shanghai and Shenzhen provide vouchers to offset computing costs, and cheap energy further reduces operational expenses for AI infrastructure.

“China has successfully leveraged subsidies before, particularly in telecommunications, enabling companies like Huawei and ZTE to expand rapidly while American and European competitors struggled,” Smith said. He noted that these measures create a competitive challenge that U.S. companies cannot ignore.

Implications for Developing Markets

Lower-cost Chinese AI models are increasingly appealing in emerging markets, where affordability and infrastructure limitations shape technology adoption. Rory Green, chief China economist at TS Lombard, explained that “a China tech sphere” could dominate in developing economies, potentially placing a majority of the global population on Chinese platforms within five to ten years.

Smith emphasized that U.S. firms have advantages, including access to cutting-edge semiconductors and other technological innovations, but they will need government support to maintain competitiveness. “For the rest of us, we have to compete with that, and we have to be good at competing with that, with the support of our governments,” he said.

Microsoft’s Global AI Investments

To counterbalance the competitive pressure, Microsoft plans to invest $50 billion by the end of the decade to expand AI infrastructure and capabilities in the “Global South.” These investments include building data centers, expanding cloud services, and reskilling programs to ensure developing nations can adopt AI responsibly and efficiently.

Smith also pointed out that Chinese firms like Huawei and Alibaba already operate data centers worldwide, which allows them to leverage government support even outside of China. While Alibaba partners with local infrastructure providers in many regions, Huawei maintains a strong presence with its own cloud facilities in key markets.

The Broader Tech Landscape

The message from Smith underscores a growing concern in the U.S. tech sector: state-backed subsidies can accelerate the development and deployment of AI solutions, giving Chinese companies a structural advantage in both cost and scale. As AI continues to expand across industries, American companies must strategize to maintain their competitive edge while navigating the global policy and economic landscape.

Global policymakers and investors are closely watching these dynamics, recognizing that the next decade of AI development may be shaped as much by geopolitics and government support as by innovation and market demand.