China’s AI Video Models Race to Commercialize Amid Boom
China’s AI video generation sector is entering a new phase of intense competition as four leading companies have collectively raised nearly 30 billion RMB (approximately $4.2 billion) in new financing over the past three months, according to Xinhua News. The surge in capital signals a fundamental shift in the industry’s valuation logic, moving from “concept-driven” to “commercialization-based pricing.”
Record-Breaking Financing Rounds
At the center of this financing wave is Kling AI, which completed a nearly $3 billion funding round—the largest single-round financing for a global video large model company. The round was co-led by CPE Yuanfeng, Guofang Venture Capital, BlueFive, Tencent, Zhongguancun Science City Fund, and CITIC Securities, with participation from Alibaba Cloud, Baidu, and dozens of first-tier institutions. The post-investment valuation is expected to reach $18 billion, as reported by Shanghai Securities News via 10jqka.
Other companies have also secured significant funding. Shengshu Technology completed a $500 million round in July led by Alibaba Cloud, while Aishu Technology closed its overall C-round at 2.98 billion RMB (approximately $420 million) with the C+ round led by Alibaba, according to PEdaily. Evoken, which operates the AI video creation platform LibTV, completed a nearly $300 million B+ round in June, bringing its post-investment valuation to over $2 billion, as ChinaVenture reported.
Giants as Both Investors and Competitors
A notable feature of this financing wave is that internet giants are simultaneously investors and competitors. Tencent, Alibaba Cloud, and Baidu jointly invested in Kling AI, while Alibaba also led Shengshu’s B round and Aishu’s C+ round. At the same time, these same companies are racing to develop their own video generation models—ByteDance launched Seedance 2.5, Alibaba released Wan2.7-Video, and Tencent Hunyuan unveiled HunyuanVideo 1.5.
“This round of financing heating up means the market’s pricing logic for the AI video generation track is shifting from ‘concept-driven’ to ‘commercialization-based pricing,’” said Zheng Xuanle, founder and CEO of Light Source Capital. “This shift confirms the industry has crossed the technology validation stage and entered the critical inflection point of industrialization.”
Commercial Traction and User Growth
The financing boom is backed by tangible commercial progress. Kling AI surpassed 100 million global users in early June 2026, up about 67% from 60 million at the end of 2025, covering 224 countries and regions, as Jiemian News reported. In Q1 2026, the company’s revenue exceeded 650 million RMB, up over 300% year-on-year, with annual recurring revenue approaching $500 million by March 2026—a fourfold increase from $100 million a year earlier.
AI short dramas have emerged as the most commercially viable application scenario. Cai Yiming, CTO and Chief Scientist at Zhongying Niannian, noted that AI short drama production costs have been compressed from 300,000-500,000 RMB for traditional live-action to just 30,000-50,000 RMB, with quality reaching commercially viable standards. Kunlun Wanwei’s AI short drama platform business has seen its ARR exceed $700 million as of the end of June 2026.
Challenges and Industry Consolidation Ahead
Despite the capital influx, the industry faces significant hurdles. Computing costs remain high, C-end user retention rates are low, and copyright compliance risks persist. DataEye Research shows that only 1.3% of new AI dramas in the first half of 2026 exceeded 50 million views—the break-even baseline—indicating intense competition and low hit rates.
CITIC Securities research suggests that the industry’s natural barriers will limit the number of effective players able to survive cycles to single digits, with the final landscape potentially being an oligopoly of “3-4 differentiated leaders coexisting.”
“Computing costs, user retention, and copyright compliance issues are both inevitable tests in the process of emerging technology maturing and important entry points for enterprises to optimize operations and build long-term competitiveness,” said Fang Han, chairman and CEO of Kunlun Wanwei.
What’s Next
As the industry transitions from technology validation to commercial scale, the next 12-24 months will be critical in determining which companies emerge as enduring leaders. With regulatory frameworks tightening—including mandatory filing for AI short dramas implemented in April 2026—and competition intensifying across all fronts, the race for AI video commercialization in China is only accelerating. Industry observers expect the sector to consolidate significantly as players compete on the efficiency of converting technological capability into sustainable business value.