- China lags behind the U.S. in generative AI, with no contender to match OpenAI, highlighting a significant technology and investment gap.
- U.S. AI investment dwarfed China's with $31 billion across 1,151 deals compared to China's $2 billion in 68 deals last year.
- The rivalry leads to a bifurcated gen AI development landscape, potentially stifling global innovation and collaboration.
Nvidia’s rocket-ship ride in the stock market underscores the extent to which chip quality and availability will dictate the winners in the generative AI era. But there’s another aspect to measuring early leads in the space. In China, which is angling to produce its own chips or get more from Nvidia, no dominant gen AI contender to OpenAI has emerged yet among dozens of Chinese tech titans and startups.
Late to the game, China is seeking to catch the lead of
OpenAI in a wider U.S. AI market shaped by tech titans Microsoft, Alphabet’s Google
and Amazon, and well-financed startups including Anthropic, which this week
received a $2.7 billion infusion of cash from Amazon.
In the fast-moving field, the gap between the U.S. and its
tech rival China is seen as wide. “The leading Chinese companies are
benchmarking against ChatGPT, which indicates how far behind they are,” said
Paul Triolo, senior vice president for China and technology policy lead at
Dentons Global Advisors in Washington, D.C.
“Not too many companies can support their own large language
model. It takes a lot of capital. Silicon Valley is definitely well ahead of
the game,” said Jenny Xiao, a partner at AI VC firm Leonis Capital in San
Francisco.
The U.S. remains the biggest investment market. Last year,
funding of gen AI upstarts accounted for nearly half of $42.5 billion invested
globally in artificial intelligence companies, according to CB Insights. In the
U.S., VCs and corporate investors drove AI investment to $31 billion across
1,151 deals, led by large outlays in OpenAI, Anthropic and Inflection. This
compares with $2 billion in 68 deals in China, which marked a large drop from
2022′s $5.5 billion in 377 deals. The fall-off is partly attributable to
restrictions on of U.S. venture investment into China.
“China is at a big disadvantage in building the foundation
models for Gen AI,” said Rui Ma, an AI investor and co-founder of investment
syndicate and podcast TechBuzz China.
But where China lags in foundational models, which are
dominated by OpenAI and Google’s Gemini, it’s closing the gap by using Meta’s
open source, large language model Llama 1, and Triolo said the Chinese
contenders, if behind, are improving on the U.S. model.
“Many of the China models are effectively forks of Llama,
and the consensus is that these forks are one to two years behind the leading
U.S companies OpenAI and its video-to-text model Sora,” Ma said.
China does have the tech talent to make a difference in the
AI rivalry in the years ahead.
A new study by think tank Marco Polo, run by the Paulson
Institute, shows that the U.S. is home to 60% of top AI institutions, and the
U.S. remains by far the leading destination for elite AI talent at 57% of the
total, compared with China at 12%. But the research finds that China leads the
U.S. by a few other measures, including being ahead of the U.S. in producing
top-tier AI researchers, based on undergraduate degrees, with China at 47% and
the U.S. lagging with 18%. Additionally, among top-tier AI researchers working
at U.S. institutions, 38% have China as their country of origin, compared with
37% from the U.S.
New Chinese gen AI market entries can also reach mass
adoption quickly. Baidu’s ChatGPT competitor, Ernie Bot, released in August
2023, reached 100 million users by the end of the year. Samsung is planning to
integrate Baidu’s Ernie AI into its new Galaxy S smartphones while in another
high-profile development that speaks to U.S.-China relations, Apple is in talks
with Baidu about supplying the iPhone 16 with the Chinese company’s gen AI
technology.
Within its current slate of AI contenders, Baidu’s Ernie Bot
models are considered among the most advanced, according to Leong.
Several other Chinese companies are forging ahead, funded by
major players in its own technology market. Large cloud companies such as such
as Baidu and Alibaba, social media players ByteDance and Tencent, and tech
companies SenseTime, iFlyTek, Megvii and Horizon Robotics, as well as research
institutes, are all aiding the effort.
Moonshot AI, funded by China’s e-commerce giant Alibaba and
VC firm Hongshan (previously Sequoia China), is building large language models
that can handle long content inputs. Meanwhile, former Google China president
Kai-Fu Lee has developed an open source gen AI model, 01.AI, funded by Alibaba
and his firm Sinovation Ventures.
While China has accelerated development of its homegrown
chip industry and advanced AI, its AI development has been limited in part by
U.S. restrictions on exporting high-end AI chips, a market cornered by Nvidia,
as part of a new battleground for tech supremacy between the U.S. and China.
“Despite efforts to develop indigenous solutions, Chinese AI
developers still largely rely on foreign hardware, particularly from U.S.
companies, which is a vulnerability in the current geopolitical climate,” said
Bernard Leong, founder and CEO of tech advisory Analyse Asia in Singapore.
The ongoing tensions between the U.S. and China over
technology innovation and national security issues is leading to a split in gen
AI development, following the pattern of other impactful technologies caught up
in superpower tech arms races. Given regulations and bans over sensitive,
cutting-edge technologies, the likely outcome is two parallel ecosystems for
gen AI, one in the U.S. and one in China. ChatGPT is blocked in China while
Baidu’s Ernie Bot can only be accessed in the U.S. with a mainland Chinese cell
phone number. “U.S. companies can’t go into China and Chinese companies can’t
go into the U.S.,” Xiao said.
U.S. Secretary of Commerce Gina Raimondo has stated that a
goal of U.S. curbs on AI chip exports is to prevent China from acquiring or
producing advanced chips. As mainland China focuses on homegrown capabilities,
Chinese companies SMIC or Huawei could be an alternative to Nvidia. But the
future for alternates is likely uncertain if export controls cut off these
companies from the most advanced designs for manufacturing. Triolo noted that
Huawei recently developed a series of AI chips as a rival to Nvidia.
China is getting ahead in applying AI to certain categories,
such as computer vision. “The chip shortage is very important for training
foundational models where you need certain chips, but for applications, you
don’t need that,” Ma said.
The “real killer app” for gen AI, according to Triolo, will
be in companies that are willing to pay money to harness the technology as part
of their business operations. Alibaba is focusing on integrating AI into its
e-commerce ecosystem. Huawei, while competing more successfully against Apple’s
iPhone in the consumer market in the past year, also has broader ambitions,
developing AI for specific industries including mining, using its in-house
hardware, Leong said.
Boston Consulting Group research suggests it may be a while
before this wider gen AI market ramps outside of tech. Sixty percent of 1,400
executives surveyed are waiting to see how gen AI regulations develop, while
only 6 percent of companies have trained their employees on gen AI tools.
AI and tech issues are front and center for China’s
leadership, with the country’s release of guardrails on AI in 2023 after
ChatGPT’s breakthrough, and then modifications of some measures.
The open source gen AI technology many Chinese developers
use can encourage collaboration among globally and lead to shared insights as
AI advances, but Leong said open source also leads to issues related to
ensuring quality and security of the models, as well as managing bias and
potential misuse of AI.
“China wants to make sure content is not spewing out. They
also want their companies to lead and are willing to reign in draconian
measures,” Triolo said.
Ethical and social concerns hinder gen AI advances in China
as well as other regions, including the U.S., as see in the battle for control
over OpenAI’s mission. Within China, there is another factor that could slow AI
acceleration, according to Leong: maintaining control of gen AI applications,
especially in areas sensitive to state interests.