A “Sputnik Moment” in China’s AI Sector is Not in the Interests of the United States

The United States is at a critical juncture in its competition with China’s rapidly advancing AI sector. As China’s capabilities grow, the U.S. must decide whether to pursue manageable development through cooperation or to enforce stricter controls, potentially provoking an unprecedented “Sputnik Moment” in China’s artificial intelligence development.

Over the past three years, the Biden administration has tried to balance fostering dialogue with China on AI cooperation and imposing export controls on AI chips and technology. With a new administration entering the White House in 2025, a critical decision looms: Should the United States continue Biden’s AI policy toward China and further intensify export controls? Or should Washington choose to have a different AI policy, promoting cooperation to keep China’s AI development on the radar? These decisions have far-reaching implications for global stability and technological leadership.

If the U.S. continues to restrict China’s access to advanced AI technology and systems, it could inadvertently spur China’s development of a self-sufficient AI ecosystem. This will complicate bilateral management of AI innovation and potentially trigger a technological arms race. 

Currently, AI innovation is advancing along two primary paths: AI chips and AI large language models. The United States leads in both areas, with pioneering products like Nvidia’s H100 GPU chip and OpenAI’s GPT-4 model. While China has put substantial effort on catching up with the United States in AI, it still lags behind the U.S. in computing power. Historically, Chinese AI companies have sought to collaborate with American firms to foster international business partnerships and invest in AI-driven public goods, such as education and medical research. This trend remains the top choice for China’s AI players, despite the United States’ export controls. From June to August 2024, Nvidia’s revenue from the China’s market was $3.7 billion, up 33.8% on the year and grew 47.2% from the last quarter. 

However, this collaborative landscape was disrupted in 2022 when the Biden administration implemented new export controls on Nvidia chips to China, straining the relationship between AI companies in the two countries. More recently, the U.S. Department of Commerce is considering restricting Chinese access to American AI models via Application Programming Interfaces (APIs), with several bills introduced in Congress reflecting a similar intent to curb China’s AI development. 

Despite these efforts, Washington’s restrictions on China’s AI industry may have an unintended consequence. Rather than hindering progress, these sanctions might catalyze a Chinese “Sputnik Moment” wherein Chinese AI companies forge some unprecedented and cutting-edge AI technological breakthroughs.  

This pattern is not new. After the 2011 Wolf Amendment, which prohibited U.S.-China cooperation in aerospace, China successfully launched its own international space station by 2021. Similarly, despite export controls on Nvidia’s advanced chips and ASML’s EUV machines, Huawei released its Mate 60 Pro smartphone in 2023 which incorporates new advanced chips. These developments suggest that U.S. sanctions may inadvertently be spurring rather than deterring Chinese technological innovation. 

The Commerce Department’s Bureau of Industry and Security (BIS)’s export controls on chips to “countries of concern” in October 2023 and the advancement of related restrictions on laptops containing advanced chips in March 2024 have already stimulated significant advancements in China’s domestic AI sector. While Chinese companies would prefer to use Nvidia’s leading AI chips that fall within Washington’s export controls, CEO Duan from Baidu has argued that the internal drivers of innovation in China are strong enough to overcome these obstacles. In early August 2024, scientists at Tsinghua University developed the world’s first optical AI chip, the Taich-II. Since optical AI chips adopt a different computing mechanism using optical spectrum, it may enable Chinese chip manufacturers an alternative pathway to producing AI chips. Just days later, Dr. Yang Hongxia from Hong Kong Polytechnic University proposed a “model-over-model” approach to reduce reliance on high-end GPUs like those from Nvidia and AMD. A recent report released by the Information Technology and Innovation Foundation also buttresses the notion that “China’s relentless drive and strategic investments in AI suggest it is only a matter of time before it catches up – if not surpasses – the United States’ early lead in AI.” ITIF Senior Policy Manager Hodan Omaar also argues in the report that “even if the U.S. government closes gaps in export control enforcement, China is working on being self-sufficient in compute capacity and reducing reliance on the United States.”

Corporate investment in China’s AI sector has also accelerated even as the U.S. sanctions have continued. Recent Financial Times data shows a significant increase in capital expenditure by major Chinese tech companies like Alibaba, Tencent and Baidu, which together spent RMB 50 billion in the first half of 2024, up from RMB 23 billion the previous year. The financial data collected by the French Institute of International Relations shows a rise in funding from 35% to 60% in 2023 in China’s AI sector. A more interesting story disclosed by the data is the surging numbers of funding rounds in AI-associated industries in China, such as chips and quantum, which indicates the high domestic investor sentiment in China’s AI sector. This rising volume of financial inflows underscores the resilience and determination of China’s AI sector in the face of external pressures.

Moreover, due to the globalization of the AI market, Chinese AI companies have many alternative partners to work with and facilitate mutually beneficial AI innovation. In April 2024, Toyota Motor Corp and Nissan Motor Co. announced their official cooperation with Tencent and Baidu on AI applications in future vehicle development. In June 2024, Tencent and Nokia from Finland reached a partnership on providing multi-cloud services for enterprises in Singapore and the Asia Pacific that are eager to boost AI innovation. 

For both the U.S. and China, managing AI development is a complex and unprecedented challenge. Introducing more uncertainty into this already intricate landscape could make effective management even more difficult. Reflecting on the U.S.-China AI dialogue held in Geneva in March, the primary takeaway was the importance of mutual understanding and information sharing, particularly on AI risks and safety.  

To avoid the pitfalls of an escalating AI rivalry, the United States should consider alternative strategies to reinforce its domestic AI industry. One of those should be to promote a certain level of cooperation with China’s AI sector. AI-supporting data should be shared between the two countries in important public policy fields, such as AI cancer research, carbon emission tracking, extreme weather monitoring, and also digital education. More importantly, it is certainly beneficial for two countries to work together on promoting global standards for AI ethics and safety and ensure AI’s contribution to public goods and global development.