Will China rule Artificial Intelligence like it does Electric Vehicles?
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 electrical 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.
Photograph: Luca Locatelli
The new Gold Rush: economic opportunity
As the cost of foundational AI models plummets, the real economic opportunity is shifting to the application layer: how this powerful technology is put to practical use. This has unleashed a torrent of innovation in sectors from healthcare and manufacturing to consumer tech and government services. China has demonstrated a particularly aggressive push for widespread adoption. A 2023 study revealed that 43% of China’s AI venture capital was directed towards manufacturing, compared to just 3% in the US. Another report found that half of all Chinese companies were actively using AI, versus only a third of their US counterparts. This rapid integration, spurred by lower costs and a willing consumer base, could translate into a significant national productivity boom. Chinese start-ups are already adapting their business models, using powerful, low-cost open source models to build tailored business solutions without the burden of hefty upfront training costs.
A lesson in electric vehicles (EV)
China’s dominance in electrification – particularly in electric vehicles – points the way for how it might approach AI. There, too, it started at a technological disadvantage, but then made giant strides through massive investment, not just in manufacturing the vehicles themselves but in battery technology.
In 2024, electric cars accounted for more than 20% of new car sales worldwide, with China maintaining its lead. Chinese sales topped 11 million, more than the entire world sold just two years earlier.
Source: National Science Board, science and engineering indicators
The rapid growth in electric vehicle (EV) sales over the past five years has significantly impacted the global car fleet. Between 2021 and the end of 2024, the global EV fleet tripled to almost 58 million units, representing some 4% of all passenger cars and, along the way, displacing more than 1 million barrels of daily oil consumption. The distribution, however, is uneven: in China, one in 10 cars is electric, compared to one in 20 in Europe – largely accounted for by China’s manufacturing prowess. It made for more than 70% of global EV production in 2024.
Building the better battery
One of the biggest constraints to the take-up of EVs is so-called range anxiety: car owners worrying about running out of power at awkward times. Typically, that’s more of an issue for smaller, cheaper vehicles, where ranges of around 150 km are the norm, rather than larger cars, where ranges of 500 km and more aren’t unusual.
Once again, China has been at the forefront of battery technology and manufacturing. Chinese scientists have not only produced incremental gains from existing liquid electrolyte lithium-ion batteries, but they’re venturing into new territories like solid-state technologies that promise a step change in energy density. At the same time, Chinese manufacturers have developed super-fast charging points that can compete with petrol stations in how fast vehicles can be powered up.
AI is undoubtedly a revolutionary technology. So far, the US has dominated, but its leadership isn’t assured. China is competing hard. Nor should the fact that China is still playing catch-up – and facing considerable barriers such as US restrictions on importing the latest chip and chip manufacturing technologies – suggest that the status quo is entrenched. Not so long ago, China was nowhere in EVs and battery technologies. If it follows the same trajectory in AI, it has the potential to shape the world in its own image.
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The authors
Alexandre Tavazzi, Senior Srategic Asset Allocation Adviser
Alexandre joined Pictet in 1997 as a senior equity analyst covering the Japanese market and co-managing the Japanese equity fund.
Prior to joining Pictet, Alexandre worked at Wako Finance and Lehman Brothers, and also spent three years with Ferrier Lullin as a senior equity analyst and fund manager on the Japanese market. He holds a degree from the University of Lausanne.
Christopher Seilern, Senior Equity Analyst
Christopher joined the Pictet Wealth Management investment team in 2008, to cover the global technology sector. His main area of expertise is publicly listed companies that focus on bringing about technological change, and, specifically, how they fit into a broader offering of assets in client portfolios.
Prior to joining Pictet, Christopher was a senior buy-side analyst at New York-based Brompton Cross Capital, a long-short equity hedge fund specialising in the technology sector. Christopher has also developed significant experience as a sell-side equity analyst covering the European technology sector in London with Collins Stewart & Co and Bryan Garnier & Cie.
