The City Leading China’s Charge to Pull Ahead in AI
Money, talent and entrepreneurial spirit have turned DeepSeek’s hometown into a global AI hub
HANGZHOU, China—China is racing to develop world-leading artificial-intelligence technology. This city is paving the way.
More than two decades ago, Jack Ma launched Alibaba from a small apartment here, kick-starting his hometown’s transformation from scenic city to tech powerhouse.
These days, Hangzhou is an AI hub at the center of China’s global tech ambitions. Its breakthrough moment came earlier this year, when local company DeepSeek shocked the world with an AI model that rivaled American programs, at a much lower cost.
“All of Hangzhou went into a frenzy,” said Zhao Ji, a 41-year-old entrepreneur who is building an AI startup from his apartment in the city.
DeepSeek’s shot to fame was no fluke. The capital of the eastern Zhejiang province and a prosperous city of roughly 13 million people, Hangzhou has spent decades cultivating entrepreneurship. Supportive government policies, research universities, major tech companies such as Alibaba and NetEase and relatively low living costs compared with Beijing and Shanghai have made Hangzhou a mecca for tech talent.
Zhao moved to Hangzhou from Beijing in 2018 and was a marketing director for Alibaba for about three years. He is one of many Alibaba alumni now looking to make their mark in the AI industry.
On a recent Friday, Zhao and two of his employees huddled around a table at his two-story apartment in a gated community near Alibaba’s headquarters. Zhao’s 8-year-old son’s toys were scattered on the floor. A signed poster of Buzz Aldrin on the moon and a framed Life magazine cover of Abraham Lincoln on Broadway adorned the walls. A biography of Walmart founder Sam Walton sat on the table.
They are building an AI agent to help businesses generate video and audio content, with the ability to clone users’ voice and likeness. Zhao launched the startup, AlphaFin, last year.
Last October, Zhao was invited to speak about AI at an expo hosted by the Hangzhou government. After his presentation, local officials approached him to add him on WeChat, China’s do-everything app, and invited him to their districts. He didn’t yet have a working product.
“They really value tech and innovation,” Zhao said.
Known for its picturesque West Lake, a source of inspiration for poets and painters throughout Chinese history, Hangzhou has long been a center for trade, thriving far from China’s political centers. Family workshops in Zhejiang province were among the first to jump into the private sector when the Chinese economy opened up in the early 1980s. Then Alibaba helped lend Hangzhou its tech-forward sheen.
Drawing inspiration from Silicon Valley, the Hangzhou government built what it calls an innovation corridor in the city’s west, near Alibaba’s campus, where startups make AI models, robotics, brain-computer interfaces and AI-assisted software. Hangzhou is known for its “Six Little Dragons,” an informal cohort of six leading AI-related tech companies in the city that includes DeepSeek.
Hangzhou earlier this year said it approved two innovation-focused funds totaling more than $28 billion. Zhejiang ranks as the top province for science and technology investment: more than $12 billion in 2024.
Alibaba is also a major funder for highflying AI startups, in addition to its own AI business, which includes chips and models. The company has said it plans to invest more than $52 billion in AI and cloud infrastructure over the next three years.
Husband and wife Wei Dabao and Wu Xiaobao have had a front-row seat to the rapid development in Hangzhou. They own a bookstore near Alibaba’s campus where tech workers browse translated books and meet for reading events. When the shop opened five years ago, it was surrounded by construction sites. Now, the area is full of shiny buildings.
Wei said Hangzhou is a “gathering place” for tech talent, thanks to Alibaba. Most people in town have either worked at Alibaba or have friends who are current or former employees.
“Everyone is connected, more or less,” he said.
The northern suburb of Liangzhu has become famous in China’s AI community for events that bring tech founders and aspirants together. Many residents call themselves “villagers.” AI entrepreneurs present ideas and mingle in a shaded backyard at a monthly gathering called “Demo Day.” Independent programmers work on projects side by side at a local coffee shop during weekly meetups known as “Crazy Thursday.”
Then there is Hangzhou’s premier research university, Zhejiang University, which counts many entrepreneurs among its alumni, including DeepSeek founder Liang Wenfeng. In the early 2000s, Zhejiang started aspiring to become a kind of Stanford University for China.
“The joke was ‘How to build a Silicon Valley? Build a world-class university and wait 30 to 50 years,’” said Duncan Clark, author of a book about Alibaba and a former visiting scholar at a Stanford entrepreneurship program. Zhejiang University, he said, “did it faster.”
In 2017, the school, the provincial government and Alibaba together set up an AI lab. The same year, Zhu Qiuguo, an engineering professor at Zhejiang, founded Deep Robotics, one of Hangzhou’s “Six Little Dragons.”
Hangzhou is also home to Westlake University, a new research institution supported by both private and public funding that aims to rival the California Institute of Technology. It has attracted many high-profile professors who have returned to China from American universities, as the U.S. cuts academic funding and heightens scrutiny of Chinese scientists. AI researcher Guo-Jun Qi and data scientist She Yiyuan are among Westlake’s newest hires from the U.S.
China’s research universities still have some catching up to do when it comes to invention. Nine of the top 10 institutions for international patent applications from academia are American, while the highest-ranked Chinese university is 29th, according to 2021-2024 data from the German Economic Institute.
Industry players and analysts also caution that China’s attempts to prop up specific industries have had mixed success because of potential resource misallocation or excessive political attention or restrictions. The scars of Beijing’s crackdown starting in 2020 on China’s tech companies are still fresh.
“The state has a deadening hand that just as often crushes entrepreneurship as it does to promote it,” said Dan Wang, a research fellow at Stanford’s Hoover History Lab.
For now, though, there are plenty of people eager to ride the AI wave.
Besides Hangzhou, Beijing and Shanghai, Guangdong province’s Shenzhen—home to tech giants such as WeChat parent Tencent and Apple rival Huawei—is another AI hub.
Liu Pei heard about Hangzhou’s AI scene and moved to the city from Beijing in May to found an AI media startup called White Whale Lab.
“When you come to Hangzhou, the people you meet make you feel really happy,” she said. “They’re really eager to seize the opportunities in AI.”