China's tech shock threatens the U.S. AI monopoly and is 'just getting started'

China's rapid advancements in artificial intelligence are poised to disrupt the longstanding technological supremacy of the United States. Rory Green, the chief China economist at TS Lombard, recently shared insights on CNBC's "Squawk Box Europe," emphasizing that the U.S. 'monopoly' in tech and AI is now being challenged by China's aggressive progress. Green warned that this 'China tech shock' is only beginning. He highlighted that China's aspirations extend beyond AI and electric vehicles, as the nation is swiftly ascending the value chain in various technology sectors. "This is unprecedented; for the first time, an emerging market is leading in science and technology," he remarked during his conversation with CNBC's Steve Sedgewick and Ben Boulos. The strength of China's tech growth lies in its ability to combine advanced technologies with lower production costs, supported by an expansive supply chain. Green noted that with President Xi Jinping adopting a proactive approach to funding these sectors, the momentum behind China's technological narrative is accelerating rapidly. Last year, Beijing discreetly established a massive national AI fund valued at 60.06 billion yuan (approximately $8.69 billion) and initiated the "AI+" program, aimed at integrating artificial intelligence throughout various economic and societal sectors. China is quickly closing the gap in the AI race, developing sophisticated models powered by domestically produced chips. This initiative is bolstered by resources from Huawei's extensive chip clusters and the country's access to affordable energy. While the U.S. semiconductor giant Nvidia is often considered the gold standard for AI training chips, Huawei is making strides by producing larger quantities of chips and utilizing cheaper energy sources for computing. Green also highlighted the potential emergence of a "China tech sphere," which could attract developing economies with its low-cost technological offerings. He posed a compelling question regarding the implications of this shift: "What if China becomes the technology partner of choice for emerging markets?" Countries with no national security concerns regarding China may find themselves choosing between affordable Chinese tech—such as Huawei products and solar panels—and pricier alternatives from the U.S. and Europe. In a related perspective, Demis Hassabis, CEO of Google DeepMind, indicated that China's AI models might only be months away from matching those of their U.S. and Western counterparts, narrowing the perceived gap in capabilities. Meanwhile, major U.S. tech players, including Amazon, Microsoft, Meta, and Alphabet, have collectively pledged up to $700 billion towards AI investments this year, stirring concerns about the sustainability of returns and resulting in a substantial market cap decline for tech giants. Karim Moussalem, chief investment officer at Selwood Asset Management, expressed apprehension regarding U.S. exceptionalism, especially following the recent downturn in the U.S. software sector. He remarked, "With the hyperscalers' capital expenditures, we are witnessing a race that involves significant financial commitments, raising questions about the returns on these investments. The uncertainty surrounding whether the U.S. will prevail in this technological competition with China is palpable." As the landscape evolves, the implications of China's advancements in AI may redefine the future of global technology and economic partnerships.