There are seven major categories of AI applications in which the US and China compete. China is ahead in most of them and its AI prowess is likely to increase its lead. They are
- Manufacturing: China has poured enormous resources into factory automation. One gauge is the number of factories outfitted with dedicated 5G networks, which support AI applications. China claims 10,000 such installations, while the US has only a few dozen, concentrated in the auto industry. The advantage is strongly in China’s favor, and advances in AI are likely to enhance it. But US manufacturing has had small impact on equity valuations.
- Internet of Things: China is ahead in automating transportation and warehousing, with fully robotic warehouses now in operation.
- Robotics: China installs more industrial robots each year than the rest of the world combined and is now a major producer of industrial robots.
- China is the leader in the so-called low altitude economy, cited by government planners for the first time in a December 2024 working paper. Drone taxis, drone deliveries and other applications are now a $100 billion business in China and are expected to double by 2026.
- Autonomous vehicles: We’ll call this a toss-up between the US and China, although China already has autonomous taxi services operating on a small scale.
- Large Language Models: again, a toss-up. The gains to be harvested by LLMs include the Philippines’ $40 billion a year call center business, in which human operators can be replaced by AI systems to a considerable extent. But the possibilities for LLM applications are so varied and extensive that predictions are guesswork at this stage.
- Biotech: The US has a distinct advantage with a strong pharmaceutical development infrastructure. China has a lead in medical data, but America’s complex of large pharmaceutical companies, startups and venture capitalists give it an edge.
The big question mark over LLM monetization is timing. The payoff could be big but will probably take longer than expected to materialize.
