China’s AI Boom May Not Lift Economy Soon as Weak Demand Bites, Says Fitch

Can AI become China’s next growth engine? Fitch explains why gains may come gradually and unevenly. Read the full report summary

PGurus Newsdesk

October 27, 2026

China’s “AI+” push meets weak household demand and property stress

Policy-backed and export-led sectors may gain, while businesses hit by weak demand face tougher credit

China’s heavy spending on artificial intelligence may not lift its wider economy anytime soon, according to Fitch Ratings. The agency says weak domestic demand and limited monetisation are likely to cap the near-term payoff, even as investment in technology and industrial uses keeps growing.

In its report, Fitch said AI is becoming a bigger part of China’s economic and credit outlook. Spending now reaches beyond chips and computing infrastructure into automation, power generation, enterprise software and industrial applications.

China is looking for new growth drivers beyond property, investment and credit expansion, the agency noted. But the larger benefits of AI, including higher productivity and stronger long-term growth, are likely to arrive only gradually. Policy is shifting towards weaving AI into industry, services, consumption and the public sector under the State Council’s “AI+” initiative. For now, most activity is concentrated in infrastructure, hardware, automation and related supply chains, while earning money from AI across much of the value chain is still at an early stage.

Fitch said lower deployment costs and open-weight models could drive wider adoption. At the same time, fierce competition could squeeze companies’ pricing power and their ability to earn returns on AI spending.

The agency also compared the Chinese and US AI ecosystems. Chinese providers tend to have the edge in deployment costs, open-weight model availability and appeal to cost-sensitive markets. US providers are generally stronger in frontier model performance, global cloud infrastructure, enterprise reach, pricing power and visibility on monetisation. These differences, Fitch said, could shape how firms in each country turn technological advances into commercial gains.

Fitch also pointed to an imbalance in China’s wider economy. Exports, industrial output and strategic investment keep activity going, while household deleveraging, weak confidence and soft private investment hold momentum back. AI could widen that divide: policy-backed and export-oriented sectors stand to gain from investment, while businesses exposed to weak domestic demand and property stress may face tougher credit conditions.

The main test for China, the report said, is turning rising AI investment into productivity gains, stronger earnings and broader demand. How quickly firms adopt the technology and how well they monetise it will decide whether AI becomes a lasting growth engine.

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