When Zhu Zhili began searching two years ago for a place to base an artificial intelligence film studio in China, the answer was obvious: Shenzhen. The southern manufacturing and technology hub offered the dense ecosystem, talent pool and infrastructure that an emerging AI filmmaker needed to get started.
This year, the calculus has changed dramatically. Zhu says he is now contacted almost daily by officials from cities and industrial parks across China, all eager to persuade him to move his business. The pitch is familiar to anyone who has watched China's industrial policy machine at work: come here, and we will help you scale.
"I am approached every day by a range of cities, from major metropolitan areas to smaller localities," Zhu said, "hoping we can establish either technology or the company there."
The scramble reflects a broader national effort to embed artificial intelligence into nearly every corner of the economy, including the entertainment sector. In China, AI-generated video is no longer being treated merely as a novelty for social media clips or experimental short films. Local governments are now positioning it as a strategic industry, offering subsidies, rent relief, computing support and access to state-backed tech clusters in an effort to create a domestic champion in AI filmmaking and distribution.
For filmmakers like Zhu, the support has been decisive. He said China has created the "best environment" for AI filmmakers, citing "cheap rent, living allowance and computing support." Zhu runs his personal studio in Shenzhen from a shared workspace backed by the city government and Hong Kong Polytechnic University, a setup that illustrates how public institutions are helping build the sector's early infrastructure.
The model is unmistakably Chinese. It resembles the playbook used to build globally competitive industries in electric vehicles, solar panels and robotics: identify a strategic technology, mobilize local governments, subsidize production and race to establish scale before rivals do. In the case of AI video, the state is not only encouraging innovation but also trying to shape the market itself.
That has created a fast-emerging ecosystem of AI filmmakers, studios and streaming platforms seeking an early lead in production techniques and distribution. The appeal is obvious. AI can dramatically reduce the cost of producing short dramas and other video content, making it possible for smaller creators to generate scenes that would otherwise require expensive sets, crews and post-production work.
Pan Xiaojun, a postgraduate film-directing student in Hainan, said the economics are transformative. "A normal wedding scene might cost me 60,000 yuan to shoot conventionally," he said. "But with AI, I can bring the same surreal scene to life for just 1,400 yuan."
Pan said local subsidies and rent waivers further reduced his computing costs, underscoring how municipal support is helping lower the barriers to entry. The cost collapse has been dramatic. In the first half of 2026, the cost of producing AI short dramas plunged from 5,000 yuan per minute to just a few hundred yuan, according to state broadcaster CCTV.
Yet the speed of the boom is also raising familiar concerns. China's state-supported industries often expand rapidly, only to run into excess capacity and brutal price competition when domestic demand fails to keep pace. That pattern is now beginning to appear in AI video.
DataEye reported that in the first half of the year, 221,900 new AI shows were launched on Douyin, China's version of TikTok. But only 1,055 of them drew more than 100 million views, a common benchmark for success. The gap between the number of productions and the number of breakout hits suggests that the market may already be crowded, with many creators chasing the same audience and the same monetization opportunities.
Local governments, however, are not slowing down. Shanghai introduced measures in May to accelerate AI-powered micro-drama production, including computing power support and cloud-based AI models designed to cut costs and aid overseas distribution. Beijing has set up a 260 million yuan fund to support audiovisual technology, while its Huairou district, a long-standing hub for China's film industry, offers vouchers to reduce computing costs for producers of short AI dramas. Shenzhen, meanwhile, is stepping up efforts to attract AI film talent with technical support for video production, visual effects and content generation, along with subsidized rent.
The competition among cities is not just about culture or creativity. It is about capturing a new industrial chain before it matures. Whoever controls the tools, talent and distribution channels for AI video could shape the next generation of digital entertainment, both inside China and potentially beyond it.
Major streaming platforms are already moving to position themselves. iQIYI, one of China's biggest video services, is "all-in" on AI, CEO Gong Yu said in August, signaling that the country's largest content companies see the technology as central to future growth rather than a passing experiment.
Still, the sector's long-term economics remain uncertain. Cheap production can flood platforms with content, but it does not guarantee audiences, profits or sustainable business models. If the market follows the trajectory of other subsidized Chinese industries, the next phase may bring consolidation, falling margins and pressure on weaker players.
For now, though, China's AI video industry is being propelled by a rare combination of policy ambition, local government competition and technological enthusiasm. What began as a search for a single studio location in Shenzhen has become part of a nationwide race to define the future of film production in the age of artificial intelligence.