China’s technology sector is now fixated on competing with American giants like Google and Microsoft in the rapidly advancing global race for artificial intelligence (AI). Whether they are billionaire entrepreneurs, mid-level engineers, or former employees of foreign firms, their collective ambition is to surpass China’s geopolitical rival in a field that could determine global power dynamics. One example is Wang Xiaochuan, an internet mogul who entered the AI field after the sensational debut of OpenAI’s ChatGPT. Chinese scientists, programmers, and financiers, including former employees of ByteDance, JD.com, and Google, are expected to drive around $15 billion of AI technology spending this year.
Wang wasted no time seizing the opportunity. By April, he had established his own startup and secured $50 million in seed capital, reaching out to former colleagues at Sogou, a search engine he had founded and Tencent had acquired in a $3.5 billion deal just two years prior. By June, his company had launched an open-source large language model, which is already being utilized by researchers at China’s top universities.
“We all heard the starting pistol in the race. Tech companies, big or small, are now on the same starting line,” said Wang, who named his startup Baichuan or “A Hundred Rivers.” “China is still three years behind the US, but we might not need three years to catch up.”
The influx of top-tier Chinese talent and investment into AI reflects a wave of activity that is reshaping Silicon Valley and has significant implications for the escalating conflict between Beijing and Washington. Analysts and industry insiders believe that AI will shape the future technology leaders, much like the internet and smartphones did, creating global titans. Furthermore, AI could have a significant impact on applications ranging from supercomputing to military capabilities, potentially influencing the geopolitical balance.
However, China operates under different circumstances due to US tech sanctions, data and censorship regulations imposed by regulators, and Western skepticism that hampers the global expansion of Chinese tech giants. These factors make it more challenging for China to catch up with the US.
AI investments in the US currently far exceed those in China, with a total of $26.6 billion invested in the US compared to China’s $4 billion in the year leading up to mid-June, according to previously unreported data from consultancy firm Preqin.
Nevertheless, the gap between the two countries is gradually narrowing, at least in terms of deal flow. The number of Chinese venture deals in AI accounted for over two-thirds of the US total, approximately 447 deals, in the year leading up to mid-June. This marks an increase from about 50% over the previous two years. China-based AI venture deals even outpaced those in consumer tech in 2022 and early 2023, according to Preqin’s data. Beijing is fully aware of this trend and recognizes that AI, like semiconductors, is crucial for maintaining China’s dominance. Consequently, the Chinese government is likely to mobilize national resources to drive advancements in AI. While startup investment suffered during Beijing’s crackdown on tech giants and “reckless capital expansion,” the party seems to encourage AI exploration.
This challenge is not unfamiliar to Chinese tech players.
During the mobile era, a generation of startups led by Tencent, Alibaba, and ByteDance emerged, creating an industry that could genuinely compete with Silicon Valley. The absence of Facebook, YouTube, and WhatsApp from the massive market of 1.4 billion people played a significant role. At one point in 2018, venture capital funding in China was on track to surpass that of the US until the trade war and economic downturn disrupted the trajectory. This situation, where local firms flourish in the absence of US rivals, is likely to repeat itself in the AI field.
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