Institutional Pressures and AI Adoption in Chinese SMEs: a Neo-Institutional Analysis with Propositions

Artificial intelligence (AI) adoption has become a strategic imperative for small and medium-sized enterprises (SMEs) in the digital economy. In China, however, SMEs frequently exhibit a pronounced gap between AI awareness and sustained adoption. This paper applies neo-institutional theory—specifically DiMaggio and Powell's model of institutional isomorphism—to examine how coercive, normative, and mimetic pressures shape AI adoption among Chinese SMEs. Adopting a conceptual theory-building approach, the paper develops an integrated framework in which institutional pressures influence AI adoption intention through legitimacy-seeking motives, while organizational capability and resource endowments moderate whether adoption becomes substantive or symbolic. The analysis identifies a legitimacy–capability paradox: institutional pressures may accelerate initial AI experimentation while simultaneously encouraging decoupled, compliance-oriented adoption. The paper contributes to institutional theory and technology adoption research by explaining not only why Chinese SMEs adopt AI but also how they adopt it. Seven propositions and five analytical tables are developed to guide future empirical research.