China is focusing on large language models in the artificial intelligence space.
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China’s rapid advancement in AI is threatening to shake up U.S. dominance in the market, with one analyst warning of a tech shock that is just getting started.
Rory Green, TS Lombard’s chief China economist and head of Asia research, told CNBC’s “Squawk Box Europe” on Monday that America’s “perceived monopoly” on tech and AI has been broken by China.
“I think the China tech shock is just getting started. It’s not just AI, DeepSeek, and electric vehicles. China is moving up the value chain very rapidly… It’s the first time in history that an emerging market economy is at the forefront of science and technology,” Green said in a conversation with CNBC’s Steve Sedgewick and Ben Boulos.
China is pairing dominant-market level tech with emerging-market production costs, backed by its massive supply chain, Green said. He added that with Xi Jinping being like a “tech bro” that is chucking money into these sectors, it makes for a powerful mix that is really rapidly accelerating the China tech story.
Indeed, Beijing quietly launched a 60.06 billion yuan ($8.69 billion) national AI fund last year, and has an initiative called “AI+” which will see the tech integrated across its economy, industries, and society.
China is quickly catching up to the U.S. in the AI arms race, developing highly advanced models powered by homegrown chips, particularly through massive Huawei chip clusters and abundant low-cost energy.
While U.S. chip giant Nvidia is viewed as the gold standard for semiconductors used to train AI models, Huawei is narrowing the gap by deploying larger volumes of chips and leveraging cheaper power to scale compute.
TS Lombard’s Green explained that a “China tech sphere” could easily form, as the world’s second-largest economy’s low-cost tech offerings may be more attractive to developing economies.
“China is a top trade partner for most of the world, particularly in emerging and frontier economies. What happens if that repeats on tech?” Green said.
Developing economies that don’t have a national security issue with China have a choice between “low-cost China tech, Huawei, 5G batteries, solar panels, AI, probably some cheap RMB financing,” or “high-cost American and European alternative,” he said.
“For these economies, I think the choice is fairly simple, and you could see easily a world where maybe most of the world’s population is running on a Chinese tech stack in five to 10 years time,” he added.
Additionally, Demis Hassabis, the CEO of Google DeepMind, one of the world’s leading AI labs, told CNBC in January that China’s AI models might be just “a matter of months” behind U.S. and Western rivals and are closer to those capabilities than “maybe we thought one or two years ago.”
U.S. hyperscaler spending
U.S. hyperscalers Amazon, Microsoft, Meta, and Alphabet recently announced capital expenditure of up to $700 billion on AI this year, which raised alarms about returns and caused $1 trillion to be wiped from the market caps of tech giants. Some stocks have since pared their losses.
Karim Moussalem, Selwood Asset Management’s chief investment officer, told “Squawk Box Europe” on Monday that there’s a lot of “nervousness around U.S. exceptionalism,” especially after the sell-off in the U.S. software sector earlier this month.
“When I think of the hyperscalers’ capex, we’re seeing a race that’s on and a lot of money being spent, and more and more question marks around whether you know all that investment, all that capex, is going to result in meaningful return on investments,” Moussalem said.
“I think that’s really what’s driving this big question mark about the U.S. versus China, and whether the U.S. will be the winner in that race. But for the time being, there’s a lot of capital being spent, actually a lot more than even what was expected a few months ago, with more and more question marks about the ROI,” he added.
— CNBC’s Steve Sedgwick and Ben Boulos contributed to this report