The Chinese firm said at an event in Hangzhou on Wednesday that the new subsidiary would make customised AI chips and embedded processors to support the firm's push into fast-growing cloud and internet of things (IoT) businesses.

Alibaba's aggressive drive to develop its own semiconductors comes as China's government looks to raise the quality of home-made chips to help propel high-tech domestic industries from cutting-edge transport to AI healthcare systems.

In April, Alibaba bought a Chinese microchip maker Hangzhou C-SKY Microsystems to help bolster its cloud-based "internet of things" (IoT) business.

Jack Ma, Alibaba co-founder and chairman, said then that China needed to control its "core technology" like chips to avoid over-reliance on U.S. imports, something which has been put in the spotlight by whipsawing trade tensions.

(Reporting by Cate Cadell; Writing by Adam Jourdan; Editing by Darren Schuettler)