Two years ago, when Zhu Zhili went looking for a home for his artificial intelligence film studio, the choice was obvious: Shenzhen, with its dense tech ecosystem. Today the choice is being made for him, one phone call at a time. "I am approached every day by a range of cities, from major metropolitan areas to smaller localities," Zhu told Reuters, "hoping we can establish either technology or the company there."
Those calls are the visible edge of a coordinated push by Chinese local governments to turn AI-generated video into a full-fledged industry, using the same subsidy-driven playbook that built China's electric vehicle, solar and robotics sectors. According to Reuters reporting published Friday by Ellen Zhang and Alessandro Diviggiano, cities are dangling cheap rent, living allowances, computing vouchers and public funds to lure AI filmmakers and startups, just as the cost of producing AI short dramas has fallen through the floor.
The Incentive Map
The offers vary by city but share a common currency: compute. Beijing has set up a 260 million yuan (about $39 million) fund to support audiovisual technology, and its Huairou district, long a center of China's film industry, hands out vouchers that cut computing costs for producers of short AI dramas. Shanghai in May introduced measures to accelerate AI-powered micro-drama production, supplying computing power and cloud-hosted AI models to lower costs and support overseas distribution. Shenzhen offers technical support for video production, visual effects and content generation, plus subsidized rent for AI film talent.
The support extends well beyond the tier-one cities. Earlier reporting by The Next Web documented Chongqing's Liangjiang Film and Television Animation Cultural and Creative Park, which hosts more than 300 production crews a year, and Linping, in Zhejiang province, which has allocated more than 100 million yuan to content creators. Guaranteed state incentives can reach two million yuan for a single drama. Zhu, who runs his personal studio from a shared workspace backed by the Shenzhen government and Hong Kong Polytechnic University and also heads the AI-generated content department at China Wit Media, said the country has created the "best environment" for AI filmmakers, with "cheap rent, living allowance and computing support."
Private platforms are layering their own money on top. iQIYI chief executive Gong Yu said in August that the streaming service is going "all-in" on AI, and the company now subsidizes some creators whose AI content streams on its platform. ByteDance's Hongguo Short Drama app has built what TechNode describes as a full-stack AI production system for micro-dramas, including fine-tuned language models for script pacing and tools to keep AI-generated characters visually consistent across episodes. The underlying video generators, including ByteDance's Seedance, Kuaishou's Kling and Shengshu Technology's Vidu, have improved to the point where some genres are hard to distinguish from live action on a phone screen.
Costs in Free Fall
The economics explain the rush. According to state broadcaster CCTV, producing a minute of AI short drama cost about 5,000 yuan ($747) at the start of 2026; by mid-year it had dropped to a few hundred yuan. Pan Xiaojun, a postgraduate film-directing student in Hainan, put it in concrete terms. "A normal wedding scene might cost me 60,000 yuan to shoot conventionally," he told Reuters. "But with AI, I can bring the same surreal scene to life for just 1,400 yuan." Subsidies and rent waivers from a local Hainan government pushed his computing bill lower still.
The volume numbers are staggering. TechNode, citing official figures, reports the industry released 367,000 micro-dramas in the first half of 2026, with AI-generated productions accounting for more than 74 percent, an average of over 1,500 new AI dramas a day. China's micro-drama market is projected to exceed 120 billion yuan (about $16.5 billion) this year, surpassing the country's theatrical box office. The first AI film from a major Chinese studio has also cleared the National Film Administration: Bona Film Group's 90-minute science-fiction epic "Sanxingdui: Future Memories" received a public-screening licence and is due out this year.
Why It Matters
China is treating generative video as a strategic industry rather than a creative curiosity, and it is doing so at the exact moment the technology crosses a cost threshold. The combination of state-subsidized compute and collapsing unit costs gives Chinese studios a production-volume advantage no Western market is currently trying to match. The same dynamic has a familiar downside. Industries showered with state support in China have repeatedly run into overcapacity and price wars, and the warning signs are already here: of 221,900 new AI shows launched on Douyin in the first half of the year, only 1,055 drew more than 100 million views, according to data firm DataEye.
There is cultural friction, too. Actors have raised concerns over the use of their likenesses, voice actors fear for their jobs, and viewers complain of plagiarism. "Some people directly blend other people's original characters or dance clips into AI-generated content without any credit," a 22-year-old AI content fan identified only as Wen told Reuters. China requires explicit labelling of AI-generated content but still has no clear copyright rules for it, a gap that matters as the content increasingly goes abroad. Director Cao Yiwen, who premiered an AI-animated film at the World AI Film Festival in Cannes in April, framed the stakes bluntly: "We fell behind in the first two industrial revolutions, so perhaps this is the Third Industrial Revolution."
What to Watch
The next test is regulatory. China's first dedicated micro-drama rules, the Administrative Measures for the Development of Micro-Dramas, took effect on September 1, requiring prominent AI labels on every episode and barring platforms from addiction-driven recommendation algorithms. Watch whether Beijing follows with copyright rules for AI-generated content, whether the Douyin hit rate improves or the glut deepens, how "Sanxingdui: Future Memories" performs at the box office, and whether cities keep bidding against each other for studios once the first wave of subsidy-backed startups has to stand on its own revenue.
“I am approached every day by a range of cities, from major metropolitan areas to smaller localities.”— Zhu Zhili, Head of AIGC department, China Wit Media