The world should take the prospect of Chinese tech dominance seriously, and start preparing now

WORLD WATCHThe world should take the prospect of Chinese tech dominance seriously, and start preparing now
  1. Chinese AI company DeepSeek’s breakthrough model tanked US tech stocks this week, as it became clear that it rivals the performance of Western models like ChatGPT – but was reportedly developed at a fraction of the cost.

Earlier in the month, US users of China’s TikTok, anticipating a ban, fled to the closest alternative – another Chinese social media app called Xiaohongshu. And on the day of President Donald Trump’s inauguration, China’s EAST reactor set a new record for sustainable fusion power.

An entrenched Western school of thought holds that China, being communist, conformist, or Confucian, cannot innovate effectively. That may have seemed credible while China was in a period of catching up with Western technological leadership: it was hardly likely to innovate its way to parity where replication was a more efficient solution.

But as the above examples show, in many areas China now keeps pace with or possesses the technological edge. China is increasingly a technology leader rather than a follower and more than capable of innovation.

While the US retains the lead across most areas of emerging technology, China is now a close peer competitor in areas such as robotics and AI, and leads in electric vehicles (EVs), batteries, and nuclear energy.

Complacency about US leadership, whether in Washington or in allied capitals, risks failure to take necessary actions now to ensure the US’s long-term position – and the relevance of technology leaders such as Germany, Japan, South Korea, and the UK.

China’s technology strategy

Beijing’s long-term development strategy centres on technology. It seeks to harness what it calls ‘New Quality Productive Forces’ – emerging technologies such as AI and robotics – to enhance productivity while remaining a major manufacturing power, bringing about a ‘fourth industrial revolution’.

EVs and lithium batteries are a prime example of where China has concentrated resources on an emerging sector to achieve dominance of the supply chain.

Just as Britain leapfrogged the rest of the world in the first industrial revolution, and the US overtook Britain with the advent of electricity and mass production, (cementing its lead in the digital age), Xi Jinping’s ambition is that China can exploit new technologies to surge ahead of the US.

China’s potential lies in a combination of factors which could allow it to rapidly outpace its competitors. As a rising power China has been forced to adapt to a world dominated by the US. It has done so in part by identifying gaps it can exploit.

EVs and lithium batteries are a prime example of where China has concentrated resources on an emerging sector to achieve dominance of the supply chain and leadership of the technology. It has pursued such goals through close cooperation between state and industry backed up by rapidly increasing spending on research and development.

Directing these efforts to emerging areas where no clear leader exists makes gaining an edge more likely. It also puts China in a position where it can readily set the technical standards for new technology and shape their global governance.

This is enhanced by Beijing’s prioritization of establishing AI hubs and green technology agreements in the Global South, typically in the absence of serious US competition, making Chinese technology the go-to option.

For technologies such as AI, diffusion – the practical deployment of technology on the ground – is arguably more important than frontier innovation in boosting productivity. In that respect, the US has demonstrative strength. However, going forward China is well placed to accelerate the implementation of new technologies at scale.

When viewed in terms of long-term geopolitical and economic competition, China possesses major advantages in its dominance of critical minerals processing, essential for emerging technologies. Additionally, its manufacturing output accounts for around 30 per cent of the global total and around double that of the US. The effective diffusion of robotics and AI models focused on logistics and production optimization will further enhance China’s manufacturing lead.

Finally, China’s leadership in renewable energy and commercial nuclear power, as well as its breakthroughs in nuclear fusion, grant it growing influence over global energy security – at time when President Trump intends the US to revert to a fossil fuel-driven economy.

Combine this with manufacturing at unparalleled scale, increasingly optimized by robotics and AI, and China has the potential to create a positive feedback loop of enhanced productivity and growth.

Possible scenarios for Chinese technological leadership

Many obstacles to Chinese technological dominance remain – but that should not lead to complacency. The combination of factors at Beijing’s disposal presents a range of possible futures, but at minimum these entail long-term peer competition with the US while overtaking all other competitors.

There is a real risk that China achieves a technological advantage similar to that established by industrialized Britain in the 18th and 19th centuries.

In the most extreme scenario, China could eclipse the US rapidly. This may not be the most likely outcome but as the above developments continue, without a step-change in US investment in manufacturing and long-term energy strategy, it will become increasingly plausible.

There is a real risk that China achieves a technological advantage similar to that established by industrialized Britain in the 18th and 19th centuries: Chinese policymakers have sought to compete in this way since China’s own conflicts with the British at the time.

How the US should respond

If it is to maintain competitiveness with China across the board, the challenge for the US will be to match China’s combination of advantages rather than breakthrough developments in any single technology.

Big investments in AI, like Trump’s $500 billion ‘Stargate’ initiative, are a good start. But a lack of US manufacturing capacity remains a major obstacle.

And any short- to medium-term economic gain from Trump’s doubling down on fossil fuels will be compromised by losing out in shaping the energy technologies of the future. That would be particularly dangerous given the energy-intensiveness of AI and quantum computing.

How US allies should respond: focused investment and adaptation

The challenge for US allies is not one of matching China across the board but of adapting to its increasing leadership while maintaining relevance.

Key to this is creating ‘strategic indispensability’, a policy concept from Japan referring to countries developing unique technology capabilities to ensure some measure of continuing relevance. Governments should identify areas where they already have a technological lead and prioritize them, including through state subsidies and preferential treatment for sovereign and allied companies.

US allies’ economic interests will increasingly diverge from those of their security partner.

US allies should work together to pool resources on research and development and manufacturing capacity, especially for technologies which could provide a qualitative advantage such as nuclear fusion and quantum computing.

Ultimately, they should aim to do all this independently of the US, as far as possible. As China–US competition intensifies and Washington prioritizes national strength over international cooperation, US allies’ economic interests will increasingly diverge from those of their security partner.

Their aim should not be alignment with either tech superpower, but cooperating among themselves to ensure long-term independent competitiveness and adaptability.

 

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