WSJ: Chinese AI Firms Race to Raise Capital to Narrow Gap with U.S.

Chinese artificial intelligence developers are stepping up efforts to raise funds through stock issuance or loans, believing they need more capital reserves to keep pace with their U.S. competitors. At least six AI model startups are preparing for IPOs in Shanghai or Hong Kong by the end of 2027. Joining them are China's two largest memory chip manufacturers and three humanoid robot developers. Recent product launches in China have brought domestic AI models closer to U.S. cutting-edge systems. However, researchers and executives at Chinese AI firms say shortages in investment and chips hinder their ability to compete with top U.S. companies. Gary Tan, fund manager at Allspring Global Investments in Singapore, said the 'main driver' of this fundraising surge is 'the massive capital required to fund AI model development, computing infrastructure, and talent recruitment.' There's another reason for seeking funds now. The U.S. currently still allows Chinese AI firms to access top-tier Nvidia chips at facilities outside China. But as discussions in Washington intensify over tightening restrictions on China's use of U.S. technology, this window may not remain open indefinitely. Executives at OpenAI and Anthropic are warning about the rise of low-cost AI, including some of China's latest models. They argue that without regulation, these AIs pose unacceptable safety risks. By raising funds now and signing contracts with overseas cloud service providers, Chinese companies can secure more computing power before the U.S. potentially tightens restrictions further. For investors, including those outside China, these IPOs represent a potentially once-in-a-lifetime opportunity to invest in companies poised to become leaders in the AI era. The risks are also high. Some current participants may not survive long-term. China's largest firms lack significant overseas revenue, and U.S.-China geopolitical tensions could hinder their expansion. According to sources, Beijing-based Moonshot AI is finalizing a private funding round valuing the company at over $30 billion and preparing for a Hong Kong IPO early next year. Last week, the company launched a powerful new model that shook global markets. Rival DeepSeek is also striving to keep up, planning to raise billions through private funding, which would value the Hangzhou-based AI developer at over $70 billion, with plans to list in Shanghai next year. ByteDance, parent of TikTok, is negotiating to raise $20 billion by issuing bonds to global investors. Social media giant Tencent recently raised about $4.7 billion through bond issuance to fund its AI development; search engine leader Baidu, given the higher valuation of its AI chip business, is planning to spin off and list its AI chip unit this year. Nonetheless, all these amounts pale in comparison to the capital fueling the growth of U.S. leaders. Earlier this year, OpenAI secured funding commitments exceeding $100 billion. The Chinese government has urged state-owned and private investors to channel so-called 'patient capital' into technology sectors like AI and semiconductors, which require sustained investment and offer no guarantee of short-term profits. Chinese leader Xi Jinping said at a science conference this month, 'Smooth corporate investment and financing channels, guiding financial capital to invest early, in small firms, for the long term, and in hard tech.' Following Xi's remarks, state financial institutions pledged to hold shares in listed AI companies for the long term. After some brokers warned the AI boom could spiral out of control, China's securities regulator said Tuesday it had discussed measures to prevent market turbulence with institutional investors. ChangXin Memory Technologies (CXMT), which produces memory chips for smartphones and laptops, is preparing for an IPO in Shanghai. Strong investor interest has pushed its fundraising target above $8 billion, double its initial goal, giving CXMT a pre-listing valuation of about $85 billion. Charu Chanana, Head of Investment Strategy at Saxo Markets, said companies on the AI supply chain raised over $10 billion in Hong Kong in the first half of this year. There are now more than 70 companies waiting to list. 'There is ample liquidity for the strongest issuers, but it may not be enough to support every company reaching its expected valuation,' Chanana said. In January, China's Zhipu (Z.AI) and Xiyu Tech (MiniMax) became the first AI model startups to go public since OpenAI released ChatGPT in 2022. The listings of these Chinese firms provided investors with a long-awaited direct pathway to participate in China's AI boom. Zhipu's market cap peaked at around $150 billion in June but has since sharply declined after domestic rivals launched more powerful models. Long Yili, a shop owner in southwestern China, was recently selected in a lottery to purchase 500 shares of memory chip maker ChangXin Memory Technologies. 'This is probably the best news recently,' Long said. 'It feels like I'm contributing to China's tech advancement.'