Christopher Seilern, Senior Equity Analyst, Pictet Wealth Management.
The US’s longstanding leadership in technological innovation is being challenged. Not only is China already at the vanguard in everything to do with electrification and clean energy, it’s also making giant strides in catching up with the US in the hottest field in tech right now: AI. Who prevails in the race for AI supremacy will shape the world for decades to come.
Right now, there’s the real risk of a “digital decoupling” between the US and China with respective allies forming blocs around two parallel AI ecosystems. Such a split would threaten to stifle global innovation by hindering collaboration. Alternatively, there’s the prospect that the status quo is maintained, with the US managing to retain its leadership in cutting-edge hardware and next-generation models – and China, for now, in second place. This would almost certainly keep tensions between the two countries at fever pitch. Least likely, albeit with potentially seismic geopolitical significance, is the prospect of China taking the lead, thus fundamentally challenging the US’s primacy in AI. And this is far from impossible, given Beijing’s determined push for AI, including its efforts to build a domestic chip industry.
The example of travel firm Airbnb aggressively taking up Alibaba’s Qwen AI models for customer service operations shows that China is comfortably catching up with, if not moving past, Western competition.
And there’s another lesson from China’s development of clean energy technologies. By making it a government priority early on, China has secured uncontested leadership in almost every segment of the energy transition. Today, China accounts for some 80% of global solar panel manufacturing and is also the world leader in wind turbine manufacturing. It also accounts for some 70% of global electric vehicle production and is home to six of the world’s top 10 battery manufacturers. The West risks further losing on the race to electrify if it relaxes its efforts or fails to implement the right industrial policies.
The Great digital decoupling
When Chinese AI start-up DeepSeek launched a large language model in January 2025 with a similar performance to that of US rival OpenAI at a fraction of the cost and computing power, it did not just set the stage for a battle between the US and China for AI supremacy. It ushered in a new world, one in which governments must make stark choices that will shape their technological independence, political alliances and economic future.
At the heart of this shifting landscape is a question of resources. The US approach has long been defined by massive capital expenditure. Major US labs are routinely spending upwards of USD 100 million training their AI models. DeepSeek turned this model on its head, spending less than a tenth of this cost to develop its powerful V3 model, cutting costs by using innovative techniques and novel computing architectures.
The competition has become cut-throat. And so far, the US is at an advantage, thanks to better hardware. Recognising China’s reliance on its technology, the US has imposed stringent export controls on advanced semiconductor chips, the lifeblood of AI development.
This move was intended to hobble China’s progress, but instead ignited an intense drive for technological self-sufficiency. China’s response has been swift and determined, with one of its tech giants emerging as a formidable domestic rival to US chip designers. The US, meanwhile, is shoring up its own supply chain.
But while China still lags in the most advanced chip fabrication, Chinese companies have become adept at finding workarounds, from leasing offshore data centres to stockpiling, demonstrating their resolve to close the gap by any means necessary.
For more information, read the full article here.
