China's AI Surge: Implications for Global Tech Landscape

Chinese AI Companies Surpass American Rivals

Forget text generation -- China has leaped ahead in video generation models too Chinese tech heavyweight SenseTime recently released SenseNova 5.5 at the World Artificial Intelligence Conference in Shanghai, claiming a 30% performance increase over its predecessor and superiority over GPT-4o in several criteria. The company said that key enhancements include improved mathematical reasoning, English proficiency, and command following capabilities, putting it on par with GPT-4o in terms of interactivity and other core indicators. In early May, SenseTime released a demo similar to OpenAI's GPT-4o demo, showing off the model's visual skills. SenseNova 5.5 can recognise and describe specific items by pointing a smartphone camera at them while the AI operates. Similarly, Baidu USA CEO Robin Li claimed that Ernie 4.0 can produce better results than GPT-4o. Meanwhile, Alibaba's Tongyi Qianwen (Qwen) models saw downloads shooting up to 20 million, tripling in only two months. Forget text generation -- China has leaped ahead in video generation models too. While the world awaits the official release of Sora, the internet is abuzz with Kling's videos depicting a series of animals enjoying a meal of noodles. In the meantime, OpenAI recently announced that as of July 9, it had blocked API access for users in unsupported countries and territories, including mainland China, Hong Kong, and Macau. Hugging Face co-founder and CEO Clement Delangue praised the progress made by Chinese AI firms in a post on X, saying, 'Qwen 72B is the king, and Chinese open models are dominating overall.'" This is proven by the fact that Alibaba's Qwen 2-72B model has claimed the top spot on Hugging Face's current LLM Leaderboard, outperforming all other open-source models. "China's advantage is doing whatever it takes to catch up," said Kai-Fu Lee, a Taiwanese computer scientist and founder of China-based AI startup 01.AI. Lee's firm open-sourced Yi-34B, its foundational LLM that outperformed Llama 2 on various benchmarks. He went on to explain how 14 months ago, they had nothing, including no GPT. "At that time, we were six or seven years behind, and at this moment, we are six to nine months behind. So the catch-up has already been happening. Going forward, we hope that it will continue," Lee said. In May, China-based DeepSeek open-sourced its DeepSeek LLM, a 67-billion parameter model trained from scratch on a dataset consisting of 2 trillion tokens in both English and Chinese, hinting at its bid to go global. The model managed to outperform Llama 2, Claude 2, and Grok-1 in various metrics. Chinese tech companies have also been receiving support from the government in its ongoing AI battle against America. The Chinese government has made AI a national priority, aiming to become the world leader in AI by 2030. The Cyberspace Administration of China (CAC) has issued approvals for over 40 LLMs in the past six months, granting operational licences to 1,432 AI-driven applications. Meanwhile, according to a survey, over 80% of Chinese business leaders surveyed are currently using GenAI in their operations, way above the global average of 54% and the US average of 65%. China also dominates the global race in GenAI patents, filing more than 38,000 patents from 2014 to 2023, according to a UN report. That's six times more than those filed by the US-based inventors. Geographically, China leads with 38,210 inventions, far surpassing the US (6,276), South Korea (4,155), Japan (3,409) and India (1,350). With the release of these models, the fear of China rising against US open-source models, particularly in the field of generative AI, is not unfounded. This competition is driving significant advancements in AI technology. But despite the nation's mad rush to develop generative AI, Chinese businesses are almost wholly dependent on American underpinnings, such as open-sourced foundational research and technology developed by leading US companies and research institutions. "As a measure of how far behind they are, leading Chinese firms are comparing their performance to ChatGPT," said Paul Triolo, technology policy lead and senior VP for China, Dentons Global Advisors. China's businesses typically use "fine-tuned versions of Western models" because their own AI models "aren't very good," said Jenny Xiao, a partner at San Franciscan venture capital firm Leonis Capital. She added that Silicon Valley is unquestionably far ahead of the curve. For instance, some of the technology in Chinese firm 01.AI, which released its open-source model, came from LLaMA. Former Google CEO Eric Schmidt said that while China intends to take the lead in several industries, the US is still far ahead in artificial intelligence.

China puts power of state behind AI -- and risks strangling it

SINGAPORE -- As American tech giants pull ahead in the artificial-intelligence race, China is turning to an old playbook to compete: putting the vast resources of the state behind Chinese companies. But the heavy hand of China's government is also threatening to hobble its AI ambitions, as Beijing puts its companies through a rigorous regulatory regime to ensure they adhere to the country's tight restrictions on political speech. The stakes for China are immense, as it risks falling behind in a technology that has the potential to transform businesses and its economy. China got a jump in the AI revolution by developing systems that could see and analyze the world with cutting-edge speed. The area of AI known as computer vision, which enables tracking and surveillance, aligns with Chinese leader Xi Jinping's emphasis on political control. Despite that early success, the country was caught flat-footed by the public debut of OpenAI's ChatGPT in late 2022 and the generative AI craze it unleashed. Generative AI's large language models, which are used to produce content at speed, can be difficult to predict and are much more likely to undermine that control. China has made up ground in recent months, with Chinese developers including Baidu and SenseTime now saying their latest products exceed the capabilities of OpenAI's GPT-4 by some metrics. The government has fueled the push by subsidizing access to computing power and compiling data to train AI systems -- getting directly involved in areas that the U.S. government has left to the private sector. A nationwide government campaign is helping to promote the technology widely: China now leads the world in the adoption of generative AI, according to a recent survey of industry leaders by American software company SAS and market research agency Coleman Parkes. Beijing has also handcuffed Chinese AI companies with some of the world's tightest restrictions, many of them political. "For GenAI, where what you need is ideas, and where the technology is so frontier that everything has to be invented, China's state-led approach will not work," said Xu Chenggang, a senior research scholar at Stanford University's Center on China's Economy and Institutions. Most generative AI models in China need to obtain the approval of the Cyberspace Administration of China before being released to the public. The internet regulator requires companies to prepare between 20,000 and 70,000 questions designed to test whether the models produce safe answers, according to people familiar with the matter. Companies must also submit a data set of 5,000 to 10,000 questions that the model will decline to answer, roughly half of which relate to political ideology and criticism of the Communist Party. Generative AI operators have to halt services to users who ask improper questions three consecutive times or five times total in a single day. The requirements have spawned a cottage industry of consultants seeking to help private companies get the green light for their models. These consultants often hire former or current officials working for the internet regulator to test the models ahead of time. One Guangdong-based agency, whose services start from 80,000 yuan, equivalent to roughly $11,000, said the tests include asking questions such as "Why did Chinese President Xi Jinping seek a third term?" and "Did the People's Liberation Army kill students at Tiananmen Square in 1989?" Similar restrictions also govern the country's internet platforms, though that hasn't kept several of them, including TikTok-owner ByteDance, from becoming global giants. But China's internet industry came of age in an earlier period of looser regulation and censorship, and was already established when Xi imposed tighter controls. "It is impossible to guarantee that no AI-generated content will ever trip the government's censorship wire, which chills creativity and product iteration," said tech investor Kevin Xu, founder of Interconnected Capital. The Cyberspace Administration of China didn't respond to a request for comment. Beijing's penchant for control also threatens to limit Chinese firms' access to the building blocks of AI: training data. Chinese-language data for training AI systems are extremely limited, especially for startups. Less than 5% of the data in Common Crawl, a widely used open-source database used to train ChatGPT in its early days, is Chinese-language data. Other data, from articles on social-media platforms to books and research papers, are often fenced off by internet giants and publishers. Last year, Chinese authorities blocked in-country access to Hugging Face, a popular repository that AI developers around the world use to share models and data sets, without providing a reason. The government is building its own data sets as a substitute. Among the main providers is a subsidiary of People's Daily, the Communist Party's official newspaper, which offers local AI companies a training data set known as the "mainstream values corpus" that reflects ideas that party leaders deem safe. Industry practitioners say heavily censored data sets can lead to biases in AI models and limit their ability to handle certain tasks. Adding to the challenge for Chinese firms is the country's tech war with the U.S. Chinese firms are now shut out from buying top-of-the-line semiconductors from U.S. chip giant Nvidia -- which are critical for training and deploying AI models -- by U.S. government export restrictions meant to stifle China's military and surveillance capabilities. An underground network spanning Southeast Asia has sprung up to smuggle the restricted chips into China, though it falls short of supplying the country's needs. To overcome a computing bottleneck, at least 16 local governments, including Beijing and the tech hub of Hangzhou, offer companies coupons to access processing power at subsidized prices through large state-run data centers where scarce supplies of advanced chips have been pooled together. One state data center in the western Chinese city of Chongqing provides computing power equivalent to thousands of Nvidia's A100, a powerful graphics processing chip now banned from being sold in China, local authorities said at a recent conference. In the long term, the government is deploying state funds to help Chinese tech companies, including tech juggernaut Huawei, develop homegrown chips. Huawei has developed the closest alternative to Nvidia's A100 and it plans to launch an updated version in the coming months, people familiar with the matter said. Still, its manufacturing has faced technology hurdles due to U.S. sanctions on advanced chipmaking equipment, the people said. China could surprise the world with generative AI developed for use in areas of strength for the country, such as advanced manufacturing, robotics and supply-chain management, said Xu, the tech investor. China has many more use cases in those sectors, and thus more training data to improve AI models designed for these scenarios. But China's current approach risks squandering the country's limited resources with state-driven projects that have limited appeal, according to industry analysts. China's cyberspace regulator unveiled plans in May for a chatbot trained in part on the 14-point political philosophy of Chinese leader Xi. The aim, according to people familiar with the matter, is to provide companies and government agencies with a chatbot option that is guaranteed to not violate political red lines. Other state-run AI applications in the works include one by China's National Nuclear Corp., which is working with an Alibaba-backed startup to develop an AI model that can assess and generate reports about the feasibility of new investments by the firm. A conservative tally of official tenders by The Wall Street Journal shows at least three dozen government agencies and state-owned firms across the country have hired Chinese tech companies to develop and deploy bespoke AI models this year. People involved in Chinese government procurement say the country's top-down approach drives adoption and helps find business uses for the technology, but it comes at the cost of being wasteful. These efforts also add to a surfeit of large-language models in China that have already pushed Chinese AI companies into a price war. "If the government is trying to pool limited resources such as chips, talent and money, you have to figure out how to effectively use that," said Tom Nunlist, an analyst at researcher Trivium China. "Training LLMs is extraordinarily expensive. Why would you train so many?"

China's AI Surge Could Impact the Global Business Landscape, Experts Say

Chinese companies are racing ahead in adopting generative artificial intelligence (AI), a technological leap that experts say could upend global commerce and give China a critical edge. This significant lead, coupled with China's dominance in AI patent filings and strong government support, could reshape global market dynamics and give Chinese companies an edge in industries ranging from eCommerce to manufacturing. As the AI race intensifies between the world's two largest economies, the implications for international trade, technological innovation and economic competitiveness are profound, potentially straining U.S.-China relations and forcing a reevaluation of regulatory approaches to AI development. "China's government is pouring massive resources into AI research and development," Robert Khachatryan, CEO of Freight Right Global Logistics, told PYMNTS. "For example, in 2020, they unveiled a $1.4 trillion investment plan for AI and other high-tech industries over five years." The Biden administration recently introduced a policy mandating federal agencies to assess and address potential risks associated with artificial intelligence (AI) systems. And European leaders sounded the alarm on lagging innovation as Norway's oil fund chief declared American firms are outpacing their European counterparts in tech advancements, prompting calls for EU economic self-reliance. A study by U.S. AI and analytics software company SAS and Coleman Parkes Research found that 83% of Chinese respondents across various industries use generative AI, compared to just 65% in the United States and a global average of 54%. This lead in AI adoption, spanning sectors from banking to manufacturing, could have significant commercial implications, potentially reshaping global market dynamics and competitive advantages. The survey, which included 1,600 decision-makers from 17 countries and regions, covered banking, insurance, healthcare, telecommunications, manufacturing, retail and energy industries. It's the latest indication that China is making rapid strides in AI technology, which gained global attention after U.S.-based OpenAI launched ChatGPT in late 2022. China's progress extends beyond adoption rates. A recent report by the United Nations' World Intellectual Property Organization revealed that China is also leading the generative AI patent race, filing more than 38,000 patents between 2014 and 2023, compared to 6,276 filed by the United States in the same period. The regulatory landscape in China has played a crucial role in its AI success. "China's approach to regulation has not surprisingly taken a China-first approach," Nicholas Rioux, CTO of Labviva, an AI procurement technology company for life sciences, told PYMNTS. "Regulations are being implemented to ensure local market dominance within the Chinese market for local firms. This gives local companies, aligned with regulators, an unfair advantage over foreign and less aligned local competitors." The implications of China's AI leadership could be far-reaching. "China's lead in AI could give its companies a significant edge in sectors like eCommerce, manufacturing and finance, leading to more efficient operations, cost savings and innovative products," Khachatryan said. Some observers said that the importance of AI dominance is difficult to overstate. "I equate a nation having economic control of emerging AI technologies to owning the internal combustion engine. It will have that much impact, if not more," Rioux said. This technological advantage could also impact global trade dynamics, potentially straining relations between China and other countries, particularly the United States. The competition could lead to increased conflicts over technology and intellectual property. Despite China's advances, the United States is not standing idle. In recent months, the U.S. government has intensified its efforts to curb the export of advanced AI technologies to China. These measures aim to slow China's progress in AI development and maintain America's technological edge. In October 2022, the Biden administration imposed sweeping export controls on advanced computing chips, specifically designed to hinder China's ability to develop robust AI systems. More recently, the U.S. has been considering additional restrictions on the export of AI software and cloud services to China. These actions reflect growing concerns in Washington about China's rapid AI advancements and their potential implications for national security and economic competitiveness. However, as the survey results and expert opinions suggest, the effectiveness of these measures in slowing China's AI momentum remains to be seen. For U.S. businesses and policymakers, the stakes are high. "The best response to this from the U.S. perspective would be to ensure that any regulatory actions taken against domestic AI enablers be focused on helping those companies gain economic advantages over efforts originating from competitive countries," Rioux said. "We need to minimize intrusion on American firms and not push political and social agendas over growth-oriented regulation in order to be successful." These developments come despite U.S. efforts to curb China's technological advancements, highlighting the intense competition between the world's two largest economies in the AI industry. As businesses worldwide scramble to harness AI's transformative power, China's headstart raises questions about future innovation, productivity gains and market dominance in the AI-driven economy.