China's artificial intelligence start-up ecosystem drew more than 110 billion yuan (US$16.2 billion) in funding during the first quarter of 2026, nearly tripling year on year as investors accelerated bets on large language models (LLMs) and embodied AI. The 185 per cent surge from the same period last year underscores a sharp escalation in capital flows into China's technology sector, according to data released on Thursday, 22 May 2026 by Beijing-based venture capital and private equity research firm Zero2IPO Research.

Scale of the AI funding surge

The AI-specific jump outpaced the broader private equity and venture capital market, which recorded 2,568 deals worth 234.4 billion yuan in the March quarter — a year-on-year rise of nearly 5 per cent in deal volume and over 15 per cent in value, according to the Zero2IPO Research report. The divergence signals that AI is absorbing a disproportionate share of available capital, compressing deal activity in adjacent sectors.

Who led the mega-rounds

Several of the quarter's largest fundraising rounds were completed by leading generative AI developers, including Moonshot AI, StepFun, Z.ai (formerly Zhipu AI), and MiniMax, as well as embodied AI firm Galaxea AI. The blockbuster rounds reflect intense investor appetite for automation and advanced computing infrastructure. Cornerstone investments in Hong Kong initial public offerings also remained active during the period, the report noted.

Foreign capital makes a dramatic comeback

One of the report's most striking findings was a sharp rebound in foreign-currency deal-making. The number of foreign-currency deals more than doubled year on year to 210, while disclosed investment value surged over 495 per cent to 67.3 billion yuan, with capital primarily targeting AI and consumer companies, according to Zero2IPO Research. The reversal suggests international investors are reassessing risk appetite toward China's technology ecosystem after a prolonged period of caution.

The competitive backdrop

By contrast, yuan-denominated investments fell nearly 13 per cent to 167.1 billion yuan, reflecting continued domestic liquidity constraints even as foreign inflows surged. The divergence between offshore and onshore capital trends points to a bifurcated funding environment — global investors chasing AI upside while domestic funds remain selective. China's AI push is unfolding against a backdrop of intensifying competition with US developers, ongoing semiconductor export controls, and a government-backed drive to commercialise homegrown LLMs.

What's next

The momentum established in Q1 2026 is expected to sustain pressure on global AI valuations as Chinese developers scale inference infrastructure and pursue international markets. Investors and policymakers will be watching whether the foreign-capital rebound persists through the second quarter — and whether embodied AI firms like Galaxea AI can convert fundraising momentum into deployable products at scale.