The Dragon's Flight

How China may be catching up to the United States in developing the most advanced artificial intelligence.

The race for building artificial intelligence runs beyond company boardrooms. Technology has an outsized impact on our quality of life, economy, and military strength—there is no doubt that the playing field is global. The recent success of American Big Tech firms (Microsoft, Google, NVIDIA, OpenAI, etc.) makes the United States look like an international leader, but with the rate of progress in China, the first-mover advantage may not last very long.

In the West, China often has a reputation for copying technology rather than leading the way with innovation. This was true in the internet era when the restrictive policies of the Great Firewall allowed Chinese tech giants to emerge and replicate business models similar to those of Google, Amazon, and eBay, in the form of Baidu, Alibaba, and JD.com. Later, in the mobile age, however, Chinese tech companies played a much more dominant role, and Xiaomi, Huawei, and Tencent built products that evolved organically and found large markets for entry-level smartphones and entertainment in developing countries. Now, in the age of artificial intelligence, the gap is getting even narrower, and Chinese companies are leapfrogging the US in many sectors. SenseTime and Megvii are global leaders in facial recognition and deep learning (even though their technology is used for surveillance). DJI is an undisputed leader in the commercial drone market with over a 70% market share and uses artificial intelligence for its autonomous flight and video processing. TikTok’s addictive but innovative recommendation algorithm is changing how GenZ around the world communicates, consumes content, and shops online.

Progress in artificial intelligence is heavily dependent on research, a domain where China has gradually outpaced and outperformed the United States. A 2021 study by Nikkei Asia revealed that China contributed about 40% of the global total of AI research papers, whereas the US accounted for only 10%. This trend continues not just for the volume but also for the overall quality of research. Among the top 10% of the most-cited research papers, Chinese papers outnumbered US papers by over 70%. Many of these papers are contributions from elite academic and research institutions such as the Chinese Academy of Sciences and Tsinghua University. This phenomenon can be attributed to China’s government policies under the Artificial Intelligence Development Plan in 2017, which set an ambitious goal for China to become the world’s leading AI innovation center by 2030. In the United States, on the other hand, research is led primarily by large tech companies and well-funded startups who, for now, still retain the edge in top-tier research quality. Six of the top ten research institutions from the Nikkei study are large US companies, the remaining four were Chinese.

In the arms race to develop artificial intelligence, another key frontier is Open Source. While Open Source development by itself is not a defensible moat, it allows companies to extend their reach and build ecosystems around their platforms. Once the backyard of large US tech companies, open source is slowly embracing developments by Chinese companies. 01.AI, a startup founded by AI veteran Kai-Fu Lee, released the Yi family of open source foundation models which quickly rose to the top of the leaderboard on HuggingFace. The company is now worth $1 billion, and their GitHub repository has over 6.8k stars at the time of writing. On the flip side, the Yi models are suspiciously similar to the underlying architecture of Meta’s Llama models and the open source community in China is not nearly as active as that in the US. According to GitHub’s annual report, China ranked #9 in creating new generative AI projects, meanwhile, the United States far outranks it at #1.

💎 Mighty Metric

China aims to increase its computing capacity to 300 exaflops by 2025. A single exaflop represents roughly the same computing power as 2 million mainstream laptops!

Even though Chinese policies attempt to lead innovation through research and involvement in open source, a major obstacle is the availability of computing power—a key ingredient in training large models. In 2022, the United States banned the export of high-performance computing equipment such as GPUs, as well as other hardware, software, and related semiconductor fabrication technology. Since Chinese design and manufacturing capabilities lag significantly behind those of the US and Taiwan, China plans to overcome these restrictions with a $41 billion "Big Fund" aimed at bolstering indigenous chip manufacturing. Furthermore, China has allocated $143 billion, spread over five years, in tax credits and subsidies to stimulate innovation and growth in the industry. The outcome of the race to AI supremacy remains uncertain, but there is no doubt that China intends to compete head-to-head to become a global AI superpower.