Tue, Jul 02, 2024 page9

• China’s AI strength suggests US export controls could backfire

  Huawei’s technology comeback shows it is unwise to underestimate Chinese companies

  • By Catherine Thorbecke / Bloomberg Opinion
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  US officials and tech leaders have spent much of this year celebrating the success of all-out efforts to stifle China’s artificial intelligence (AI) ambitions.

  However, it is too soon to count Beijing out of the race, and US attempts to limit China’s progress have pushed the nation to advance in creating a homegrown ecosystem at a time when developing sovereign AI has emerged as a global national security imperative. It would be unwise to underestimate the stakes for China.

  At a Huawei developer conference on June 21, the chairman of Huawei Technologies Co’s consumer business arm, Richard Yu (余承東), said the tech giant, long kneecapped by US restrictions, has taken 10 years to do what it took European and US counterparts 30 years. Yu touted Huawei’s latest processors as 1.1 times more effective in training AI models than other offerings on the market. (Notably, Yu stopped short of naming specifics here, while previous Bloomberg News reporting suggests costly and mixed results in the firm’s semiconductor push). But Huawei’s race to develop its own chips has also surprised industry watchers, and even caught the attention of Jensen Huang (黃仁勳), the chief executive officer of AI’s golden child, Nvidia Corp.

  Separately, Chinese quant firm High-Flyer Capital Management quietly released an open-source AI model earlier last month dubbed DeepSeek Coder V2 that impressed much of the global tech community with its ability to write code and do math. Its developers also claim it beat competitors at common benchmarks — at a fraction of the cost of other tools developed by US tech giants, and despite the intense restrictions on access to chips from Washington.

  US tech curbs on semiconductors present the biggest obstacles to China’s ambitions. Companies have been cut off from accessing the most-advanced chips and manufacturing tools made by the US and its allies. However, this has also incentivized Beijing to double down on longer-term efforts to create a self-sufficient chips and AI ecosystem.

  Dutch firm ASML Holding NV, which effectively holds a monopoly over the most advanced machines required for developing cutting-edge chips, finds itself in the middle of the geopolitical hot mess. The Dutch government, under US pressure, has banned the sale of its top-of-the-line equipment in China. However, as chief executive officer Christophe Fouquet said in the Wall Street Journal earlier last month, the more restrictions, the stronger the push for people to do it themselves.

  Access to chips is a critical aspect of the global AI race, but access to talent is arguably the backbone of development, and by this measure, China is making immense strides. Top-tier researchers originating from China jumped to 47 percent in 2022 from 29 percent in 2019, while those coming from the US fell to 18 percent from 20 percent. Many of the brightest minds in the field are still choosing to work in the US, but China is rapidly closing the gap, according to most recent data tracked by the think tank Macro Polo.

  Indeed, by most measures, the US remains the global front-runner when it comes to AI, but the technology that promises to transform entire industries has not even begun to peak.

  The US spent years trying to cripple Huawei’s tech dominance, and for a while, it seemed to be working. However, the company’s recent successes have since shown that these efforts might have backfired and made it stronger and more self-sufficient. The numbers do not lie: Huawei’s profit surged 564 percent in its March quarter.

  China has long resented foreign attempts to influence its economy, dating back to the 19th century when the British Empire tried to force China to buy opium. More recently, this patriotism has been cited as one factor that pushed domestic sales of Huawei smartphones and led to the company’s Harmony operating system overtaking Apple Inc’s iOS in Chinese market share earlier this year.

  Huawei’s surprise comeback shows it is unwise to underestimate how Chinese companies and consumers behave when they feel oppressed by a foreign power and how that is galvanizing them in the AI race. Sheer market size alone and a collective national interest could tip the balance of power toward Beijing in the years ahead. Washington should not discount how imposing scarcity all too often breeds innovation.

  Catherine Thorbecke is a Bloomberg Opinion columnist covering Asia tech. Previously she was a tech reporter at CNN and ABC News. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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