To gain supremacy in the field of AI, there is a competition between China and the US. There is a feeling that maybe US will emerge supreme. It has the largest chip making company Nvidia with a market capitalization of $ 4 trillion. Microsoft which backs OpenAI is not far behind — it has a valuation of $3.7 trillion.
The pioneers are not always the ultimate winners. There are reports of China acquiring spectacular gains. OpenAI’s ChatGPT broke the new ground. However, soon China introduced DeepSEEk early 2025 with cost efficiency and processing efficiency. In July 2025, Moonshot AI from China released its Kimi K2 model. It outperforms Western competitions.
Many factors influence this race — powerful chips, talent, software and strategic focus. The US focused on semiconductors and Biden administration banned exports of these, but the policy since then has backfired. China took this seriously and pursued its own development of AI chips.
Ultimately, the decisive factor in this race will be not the hardware but the software. China is attaining higher rankings in the innovation of performance.
The most crucial component here is the focus on basic theoretical research. The government’s assistance here plays a vital role. It pushes the abstract frontiers of knowledge. The US here is at a disadvantage. The total spending of the US on R&D shows a downward trend. This is so since the post-Sputnik peak of 1964. The basic research’s share has fallen from 30 per cent in the 1970s to around 10 per cent in 2023. The federal funding for basic research is just $30 billion. It is a big drop. In contrast, China is advancing its science and technology agenda. Its R&D spend is rising at an annual average rate of 14 per cent over the past 10 years. The US is ceding its lead in government-supported basic research. China considers basic research as the pillar of Chinese innovation.
There is contlict between the two systems — USA’s market-driven model and China’s state-supported industrial policy. The great leveller is basic research. Innovation ultimaely flows from discovery.
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