When it comes to industrial policy, no one does it quite like the Chinese.

That’s not a compliment necessarily, nor is it a criticism. In case you haven’t noticed, the US is increasingly prone to something that looks quite a bit like state-led economic development aimed at favoring certain sectors and companies in the interest of promoting what the government believes to be the national interest.

These days, many manifestations of industrial policy relate to AI, and according to reports, China’s in the process of cobbling together what could be the world’s biggest government semiconductor initiative.

The contours of the plan, sketched on Friday by Bloomberg which described “the largest state-backed semiconductor incentives program ever conceived,” entail state-facilitated financing and a hodgepodge of incentives worth as much as CNY500 billion (roughly $70 billion). The CHIPS Act, by contrast, earmarked $39 billion spread over five years for domestic chip production in the US.

The goal is to achieve AI self-sufficiency in the face of a US-led effort to prevent the Chinese from acquiring the most advanced chips. Some argue a better strategy involves not just allowing China to purchase cutting-edge chips from abroad, but in fact promoting such purchases so as to keep China dependent on foreign technology.

I’m sympathetic to such notions, but as discussed here earlier this week, the problem is Xi Jinping. He’s not your run-of-the-mill 21st century autocrat. He’s a throwback. An anachronistic, tyrannical ideologue who can’t be bribed, nor induced to abandon his principles in pursuit of transactional dealmaking. You can offer him Nvidia Blackwells if you like (never mind that DeepSeek already has them), but you won’t necessarily get anything you really want in return — like, say, Taiwan assurances.

Also, Xi’s no idiot. The opposite, in fact. He’s very insecure, and that translates directly into deep suspicion vis-à-vis the motives of foreign actors, particularly China’s strategic adversaries.

China’s viewed as half a dozen years behind in key areas of semiconductor development, but it’s occurred to Xi that a China which relies on foreign technology to advance its domestic AI priorities is a beholden China. Just as importantly, a technologically-dependent China can’t confidently integrate AI into the PLA’s war-fighting capabilities for fear of being compromised.

Ultimately, the US can’t safely sell China cutting-edge AI technology and China can’t safely buy it. Sure, some Chinese companies might bite on Trump’s offer to let Jensen Huang sell last cycle’s chips to “approved” customers in China, but getting strung along with outdated hardware isn’t ideal if you’re Xi.

So, China will work to advance its homegrown AI industry via the likes of Cambricon Tech and perennial bogeyman Huawei which, according to Western intelligence agencies, is inherently nefarious and always up to no good even when they’re just — I don’t know — choosing a color palette for their latest smartphones.

Other than a wide range for the headline spending and incentive package (CNY200 billion to CNY500 billion) details around the latest Chinese chip initiative were sparse. As Bloomberg put it, the specifics of the incentives “are still getting worked out,” as are the “exact amounts and target companies.” For now, this is more about the signaling than anything else.

It’s worth noting that the push comes at a critical juncture for the Chinese economy, which is struggling with subdued domestic demand and a Western world increasingly skeptical of imbalanced trade. China’s trade surplus surpassed $1 trillion for 2025 last month.

Activity data covering November due next week is likely to show another decline in fixed investment which fell double digits in October. For the year, the broadest measure of such outlays was down 1.7% with just two months to go, as illustrated below.

The figure’s a reminder: The slump counts as unprecedented, and it’s drawing a lot of attention, including from America’s paper of record.

“This year, China’s investments in assets like new factories, public infrastructure and housing are expected to fall for the first time since the late 1980s, ushering in a more conservative era for an economy that has reshaped the global order,” The New York Times wrote, in a piece that briefly sat above the digital fold Friday.

“Investment in property, infrastructure and manufacturing — the three major components that make up the figure — are all declining at the same time,” Daisuke Wakabayashi and Amy Chang Chien went on, adding that “in the past, a downturn in one area was offset by spending in another segment [and] the government typically stepped in to manage downturns by bolstering real estate or spending lavishly on infrastructure.”

This time, ghost cities and bridges to nowhere aren’t a viable option for “lavish spending,” as the Times put it, but AI and everything to do with it certainly is.

One worker quoted by the Times said manufacturers are “frantically selling off fixed assets because they’re uncertain about the future.” Maybe they can all get loans and subsidies for factory-to-fab conversions.