China focuses on large-scale language models in the field of artificial intelligence.
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China’s rapid advances in AI threaten to undermine America’s dominance in the market, with one analyst warning that a technology shock is just beginning.
Rory Green, chief China economist and head of Asia research at TS Lombard, told CNBC’s “Squawk Box Europe” on Monday that China has broken the U.S.’s “supposed monopoly” on technology and AI.
“I think the China technology shock is just beginning,” Green said in a conversation with CNBC’s Steve Sedgwick and Ben Boulos. “It’s not just AI, Deep Seek, electric cars. China is moving up the value chain very quickly…This is the first time in history that an emerging market economy is at the forefront of science and technology.”
Green said China combines dominant market-level technology with emerging market production costs, backed by a large supply chain. He added that Xi Jinping is like a “tech buddy” pouring money into these areas, creating a powerful combination and rapidly accelerating China’s technology history.
In fact, the Chinese government secretly established a 60.06 billion yuan ($8.69 billion) national AI fund last year, with an initiative called “AI+” to integrate technology across the economy, industry, and society.
China is rapidly catching up with the US in the AI arms race, developing advanced models powered by domestically produced chips, especially through large Huawei chip clusters and abundant low-cost energy.
On the other hand, US semiconductor giant Nvidia is considered the gold standard for semiconductors used to train AI models, but Huawei is trying to close the gap by introducing more chips and leveraging cheaper power to scale computing.
TS Lombard’s Green explained that a “China tech sphere” could easily form because the world’s second-largest economy’s low-cost technology products may be more attractive to developing countries.
“China is a top trading partner for most parts of the world, especially emerging and peripheral economies. What if that happens again in technology?” Green said.
Developing countries that don’t have national security issues with China have a choice between “low-cost Chinese technology, Huawei, 5G batteries, solar panels, AI, and perhaps cheap renminbi financing” or “high-cost American and European alternatives,” he said.
“I think the choice is pretty simple for these economies. It’s easy to imagine a world in five to 10 years where probably most of the world’s population will be running on a Chinese technology stack,” he added.
Additionally, Demis Hassabis, CEO of Google DeepMind, one of the world’s leading AI labs, told CNBC in January that China’s AI models may be just “a few months” behind its U.S. and Western rivals, and are closer to their capabilities than “we probably thought a year or two ago.”
US hyperscaler spending
U.S. hyperscalers Amazon, Microsoft, Meta and Alphabet recently announced up to $700 billion in capital spending on AI this year, raising concerns about profits and wiping $1 trillion from the tech giants’ market capitalizations. Some stocks have since cut their losses.
Karim Moussalem, chief investment officer at Sellwood Asset Management, told Squawk Box Europe on Monday that there is “a lot of anxiety about American exceptionalism”, especially after the decline in the U.S. software sector earlier this month.
“When you think about hyperscaler capex, you’re seeing the race go on and a lot of money being spent. There’s more and more question marks about whether all that investment, all that capex, is going to translate into a meaningful return on investment,” Mussallem said.
“I think that’s the real thing that’s creating a big question mark about the US vs. China and whether the US is going to be the winner in that race. But for the time being, there’s a lot of capital being spent, much more than was actually expected a few months ago, and there are more and more question marks about ROI,” he added.
—CNBC’s Steve Sedgwick and Ben Boulos contributed to this report
