In AI race against US, China is racking up real-world wins

The U.S. may hold the lead in cutting-edge AI tech but China is racking up economic wins with real-world adoption

Author’s note: Thank you for reading my newsletter. I did notice I had got quite a number of new subscribers recently. I usually write about the interplay between technology and geopolitics; sometimes I also share my international travel experience. I know it’s been a while since my last update. I will try to write more often if my busy work schedule allows. Below is my latest analysis on the increasing competitions between the U.S. and China on AI. Feel free to comment or directly contact me for more thoughts.

The United States and China are not only locked in a growing tariff war that could drag the world economy into a recession but also stuck in an increasingly fierce competition in the field of artificial intelligence. So far, the US is seen as the leader in AI technologies but that does not necessarily mean it can simply declare itself the winner in the AI contest.

The so-called DeepSeek effect – the revolutionary impact of the technologies developed by China’s home-grown AI start-up DeepSeek – has shown how Chinese AI can exert vast influence and power.

Just a few weeks after DeepSeek’s dark-horse success made global headlines, Chinese President Xi Jinping hosted a rare gathering of Chinese technology entrepreneurs, including Jack Ma, founder of Alibaba Group Holding (which owns the South China Morning Post) and rising star Liang Wenfeng, founder of DeepSeek. Xi’s message to the technology leaders was simple and direct: use new technologies to help to grow the Chinese economy.

China’s top-down approach to policymaking can allow the country to quickly reap economic benefits from its efficiency. After Xi’s February meeting, local governments in places from Shenzhen (home to many well-established tech companies like Tencent and Huawei Technologies) to Shanghai (the birthplace of popular apps such as Instagram-like RedNoteand Temu, the shopping platform which is competing with Amazon for a new generation of global e-commerce consumers) began to throw their support behind AI developments in the hope of cultivating the next DeepSeek.

On the regulatory side, China, which has been studying the European Union’s AI Act, the world’s first legal framework for artificial intelligence, is moving away from more comprehensive, risk-based regulation, with officials warning about the dangers of overregulation, including of China falling behind in the AI race. This is especially in the wake of DeepSeek’s success, as the Chinese government looks to encourage AI development in a more flexible regulatory environment.

Across the EU, tech companies have raised concerns over AI regulation enforcement challenges and high compliance costs, amid fears of overregulation stifling AI competition. In contrast, China set up an AI technical standards committee under the Ministry of Industry and Information Technology late last year, and is now focusing on the regulation of real-world AI applications such as generative AI through agreed-upon standards to support industrial and economic development.

China’s rapid advancements in AI so far this year are making the US sit up and take notice. In February, the White House declared it was formulating an AI Action Plan to “sustain and enhance America’s global AI dominance”, and asked for public feedback. US tech giants and start-ups including OpenAI, Meta, Google, Anthropic and Microsoft made submissions.

Some possible outcomes include further restrictions on US exports of the advanced chips used in generative AI to China, as the continued success of companies like DeepSeek relies on the products of American chip designers, especially Nvidia. The Trump administration is also reportedly considering banning DeepSeek’s AI chatbot from all US government devices over national security concerns.

As the AI competition between Washington and Beijing grows ever more hostile, many industry analysts still believe the US can keep its competitive advantage for years to come, especially in AI reasoning, agent design and accuracy. However, China is more interested in exploring how to put AI technology – even though Chinese companies’ AI developments may be less advanced than those of their American peers – into practice in ways that benefit businesses and ordinary people as soon as possible.

For example, Wumart, as I understand it, has started experimenting with DeepSeek’s AI models to upgrade its customer relations management system. The Walmart-like Chinese supermarket chain operator wants to better understand customers’ shopping habits and behaviour to improve sales, and is leveraging AI-powered data analysis.

There are many other real-world cases of Chinese businesses finding applications for AI. As these uses grow, investment bank analysts are beginning to call for a revaluation of Chinese equities across several sectors, seeing a huge potential for rapid revenue growth as more companies use AI to drive their business. The DeepSeek effect continues to extend, even to becoming a major factor driving up the Chinese stock market this year.

Sun Weimin, chief engineer at the Cyberspace Administration of China, the country’s primary web regulatory body, made an interesting point about the US-China AI competition recently, at the World Internet Conference Asia-Pacific Summit in Hong Kong.

“A nation’s strength does not lie solely in whether it invents a new technology first, but in its ability to scale and apply that technology efficiently across industries,” Sun said. For AI, success depended “not only on how it is developed, but more importantly on how it is used, deployed, refined and continuously improved through real-world application”, she added.

And so as US President Donald Trump busies himself with his grand plan for global “reciprocal” tariffs, prompting warnings from many industry executives that the tariffs could increase the risk of the American economy heading into a recession, Beijing has made up its mind to boost the Chinese economy by leveraging the development of AI.

Even though China’s AI technology may not be world-leading yet, the country’s massive domestic market and the rapid adoption of AI applications among ordinary consumers could start to make a difference in the intensifying US-China AI competition, at least in the aspect of making an economic impact.

(This article was first published in the South China Morning Post both online and in print on April 23, 2025.)