Why Chinese Tech Companies Are Fast Eroding the US Lead In AI

US companies may be squandering their lead by continuing two practices which have stood them well in the past but may not work as well with AI.

These practices include over pricing for their AI products and services as well as insisting on control rather than offering open source options for users to adapt. Chinese tech companies, by contrast, are vastly underpricing their models and giving users the ability to manipulate the models. Those cost and flexibility benefits are winning over corporate customers around the world, advantaging the Chinese. For US companies, those grasping historical practices may need to change if  they wish to fend off the Chinese. JL 

Liza Lin and colleagues report in the Wall Street Journal:

Chinese AI companies are loosening the U.S.’s global stranglehold on AI, challenging American superiority. In Europe, the Middle East, Africa and Asia, users ranging from multinational banks to universities are turning to  models from Chinese companies. as in many other industries, Chinese companies have started to snatch customers by offering performance that is nearly as good at vastly lower prices. Leading Chinese AI companies benefit from releasing their AI models open-source, meaning users are free to tweak them for their own purposes. That encourages developers and companies to adopt them. A study of global competitiveness in critical technologies released in early June found China has advantages in two key building blocks of AI, data and human capital.

Chinese artificial-intelligence companies are loosening the U.S.’s global stranglehold on AI, challenging American superiority and setting the stage for a global arms race in the technology.

In Europe, the Middle East, Africa and Asia, users ranging from multinational banks to public universities are turning to large language models from Chinese companies such as startup DeepSeek and e-commerce giant Alibaba as alternatives to American offerings such as ChatGPT.

HSBC and Standard Chartered have begun testing DeepSeek’s models internally, according to people familiar with the matter. Saudi Aramco, the world’s largest oil company, recently installed DeepSeek in its main data center.

Even major American cloud service providers such as Amazon Web Services, Microsoft and Google offer DeepSeek to customers, despite the White House banning use of the company’s app on some government devices over data-security concerns.

OpenAI’s ChatGPT remains the world’s predominant AI consumer chatbot, with 910 million global downloads compared with DeepSeek’s 125 million, figures from researcher Sensor Tower show. American AI is widely seen as the industry’s gold standard, thanks to advantages in computing semiconductors, cutting-edge research and access to financial capital.

But as in many other industries, Chinese companies have started to snatch customers by offering performance that is nearly as good at vastly lower prices. A study of global competitiveness in critical technologies released in early June by researchers at Harvard University found China has advantages in two key building blocks of AI, data and human capital, that are helping it keep pace

 

The competition, some industry insiders say, has set the world on the path toward a technological Cold War in which countries will have to decide to align with either American or Chinese AI systems.

“The No. 1 factor that will define whether the U.S. or China wins this race is whose technology is most broadly adopted in the rest of the world,” Microsoft President Brad Smith said at a recent Senate hearing. “Whoever gets there first will be difficult to supplant.”

 

China’s AI companies have barreled forward despite barriers thrown in their path by the U.S. Concerned about China’s pursuit of cutting-edge technology for surveillance or military purposes, Washington squeezed Chinese AI companies’ access to American computer chips, know-how and financing, and is threatening to tighten more.

Beijing, in turn, is pouring money into building an AI supply chain with as little reliance on the U.S. as possible.

 

Papers published in military journals show the People’s Liberation Army, like the U.S. military, is actively exploring how to exploit advances in AI for strategic advantage, though it is hard to determine how far those efforts have gone. U.S. lawmakers recently introduced a bipartisan bill that would ban federal agencies from using AI developed in China.

As the competing systems become more closed off to each other, industry insiders say AI models will have freer rein to lock users inside bubbles of misinformation and propaganda. Further down the line, a breakdown in U.S.-China cooperation on safety and security could cripple the world’s capacity to fight future military and societal threats from unrestrained AI.

 

Lost opportunities

The fracturing of global AI is already costing Western makers of computer chips and other hardware billions in lost sales. When the Trump administration halted the sale of Nvidia’s H20 AI chip—a processor stripped down to meet U.S. export-control requirements for China—researcher Jefferies forecast the move would cost Nvidia $10 billion in lost revenue.

Adoption of Chinese models globally could also mean lost market share and earnings for AI-related U.S. firms such as Google and Meta.

 

This year, privately held OpenAI has been making a strong push to expand overseas, opening offices in Europe and Asia.

In a public post on Substack on June 25, OpenAI wrote that Zhipu AI, a Chinese AI upstart, was making inroads helping Southeast Asian, Middle Eastern and African nations build out their AI infrastructure.

 

OpenAI said the Chinese startup’s goal was to “lock Chinese systems and standards into emerging markets before U.S. or European rivals can,” and claimed its leadership frequently engaged with Chinese Communist Party officials. OpenAI has a similar business line selling AI solutions to governments around the world.

“We want to make sure democratic AI wins over authoritarian AI,” OpenAI Chief Executive Sam Altman said in May.

Sam Altman’s OpenAI has been making a strong push to expand overseas. PHOTO: SEONGJOON CHO/BLOOMBERG

Zhipu didn’t respond to a request for comment.

While American AI companies give priority to the pursuit of major breakthroughs in a race to build artificial superintelligence, China’s AI industry is focused far more on using AI to build practical applications—an emphasis that could help it win new users quickly.

Leading Chinese AI companies—which include Tencent and Baidu—further benefit from releasing their AI models open-source, meaning users are free to tweak them for their own purposes. That encourages developers and companies globally to adopt them.

 

Analysts say it could also pressure U.S. rivals such as OpenAI and Anthropic to justify keeping their models private and the premiums they charge for their service. News Corp, owner of The Wall Street Journal, has a content-licensing partnership with OpenAI.

On Latenode, a Cyprus-based platform that helps global businesses build custom AI tools for tasks including creating social-media and marketing content, as many as one in five users globally now opt for DeepSeek’s model, according to co-founder Oleg Zankov.

“DeepSeek is overall the same quality but 17 times cheaper,” Zankov said, which makes it particularly appealing for clients in places such as Chile and Brazil, where money and computing power aren’t as plentiful.

Developers have created more than 100,000 derivative models based on Alibaba’s flagship open-source AI model, Qwen, Alibaba said.

A flow diagram shows how user queries make their way through Alibaba’s flagship open-source AI model, Qwen. PHOTO: SAMSUL SAID/BLOOMBERG

Abeja, a Tokyo-based AI startup, chose Qwen over similar products from Google and Meta last fall when asked to build a series of customized models for Japan’s Ministry of Economy, Trade and Industry.

At the University of the Witwatersrand in South Africa, research managers chose DeepSeek for a pilot grant-writing project because it is open-source and can be used offline, keeping the university’s data safe, according to Taariq Surtee, the university’s head of e-research.

 

A few years ago, the American and Chinese AI sectors were tightly intertwined.

In 2018, U.S. investors participated in deals covering around 30% of the $21.9 billion in funding for the Chinese AI sector, according to PitchBook. Elite Chinese students flooded into American universities and Silicon Valley companies.

Today, U.S. venture-capital investment in Chinese AI companies has largely dried up. Chinese nationals are finding it harder to study and work in the U.S.

 

The less dominant American AI companies are, the less power the U.S. will have to set global standards for how the technology should be used, industry analysts say. That opens the door for Beijing to use Chinese models as a Trojan horse for disseminating information that reflects its preferred view of the world, some warn.

While the open-source version of DeepSeek deployed by some institutions and researchers isn’t censored, the app’s consumer version produces censored answers on topics considered sensitive by the Communist Party, such as ethnic assimilation campaigns in Xinjiang and Tibet

 

DeepSeek didn’t respond to a request for comment.

The U.S. also risks losing insight into China’s ambitions and AI innovations, according to Ritwik Gupta, AI policy researcher at the University of California, Berkeley.

“If they are dependent on the global ecosystem, then we can govern it,” said Gupta. “If not, China is going to do what it is going to do, and we won’t have visibility.”