This piece is published in partnership with the French Institute for International and Strategic Affairs (IRIS).
China’s rapid progress in AI challenges US leadership and the narrative of its “financial exceptionalism” that underpins the asset bubble. It demonstrates what can be achieved when open-source collaboration, technical expertise, and industrial strategy align. Rather than a genius breakthrough, this advancement is rooted in engineering skills, rational investment and industrial organization. China’s weak domestic demand also means it will increasingly include AI models and semiconductors as part of its mass export strategy.
At the same time, China is pursuing a geopolitical ambition. By positioning itself as a champion of open-source AI, the country is leveraging technology as a tool for global influence, offering an alternative framework to proprietary systems built on unsustainable funding. This is striking given that open-source is ubiquitous in western digital technology and can even be seen as its foundation. Many U.S. AI labs, like the ill-named OpenAI, have drifted away from this logic amid the hype and financial excesses.
Current developments rely on globally-shared engineering skills. The path to technological competitiveness is open to any nation – including those in Europe – that chooses to support broad scientific education, empower its younger generations, and reward inventiveness over bureaucratic inertia. With determination, resources, and industrial realism, catch-up remains within reach.
The AI Race and the Open-Source Strategy
The global AI landscape has been undergoing a shift far beyond Silicon Valley’s hyped labs since last year’s ‘Deepseek moment’. The United States still leads to some extent in cutting-edge AI models, which continue to set benchmarks in reasoning, coding, and multi-modal tasks. However, the rise of Chinese AI models like Moonshot AI’s Kimi K3 or DeepSeek V4 has introduced a new dynamic, with performance that rivals US models at a fraction of the cost.
China is challenging its dominance in ways that seemed impossible to envision just a couple of years ago, based on the US exceptionalism narrative, but easier to anticipate with a pragmatic sense of traditional math and engineering skills. While lacking the funding scale of global AI labs, French startup Mistral demonstrated, even before Deepseek, that it was possible to develop a competitive model, initially with just about thirty top scientists.
Chinese competition is economically and financially disruptive, to the point of challenging the stratospheric valuations of US tech giants. As a result, it is also starting to shake semi-conductor companies, notably in Asia, which have enjoyed a massive transfer of cash flow from American ‘hyperscalers’ spending unlimited amounts on compute and infrastructure.
The cost advantage is particularly compelling in the era of AI agents, where iterative actions drive exponential token consumption. Companies are increasingly routing tasks to Chinese models to slash costs. In the race to scale AI, affordability is becoming nearly as important as performance.
Beyond pricing, the philosophy and politics behind AI development is key. At the World AI Conference in Shanghai this July, Chinese leaders and tech executives positioned their country as the global champion of open-source AI. Unlike the US, where proprietary models now dominate, China framed its AI advancements as open, accessible, and collaborative, in contrast to the closed, corporate-controlled systems of Silicon Valley giants.
By offering accessible, low-cost AI tools, China is courting the Global South and beyond. The idea is that AI should be seen as a public good more than a corporate asset. Of course, the devil is the details and it will be interesting to monitor how Chinese companies and policymakers will deliver on this commitment over time. However, it is striking that China is officially making its own the approach which has long been a discrete pillar of western tech, around Linux and far beyond. OpenAI was also originally launched on this promise.
China’s open-source strategy serves three key objectives. It undermines US tech dominance by providing a viable alternative to proprietary systems. It builds a new tech alliance, particularly among developing nations that lack the compute resources for expensive models. And it lays the groundwork for a parallel tech ecosystem, one that reduces dependence on the U.S. and includes domestic hardware, alternative cloud platforms, and even standards-setting.
While America relies on proprietary systems and export controls to maintain its edge, China is betting on openness and accessibility to win global influence. The temptation for the US to respond with a ban of those models risks backfiring, by dissociating its top companies from the achievements made in open-source AI, including at the national level, and leaving domestic users at the mercy of pricing schemes dependent on the ebb and flow of the bubble.
Semiconductors and the Battle for Tech Sovereignty
The AI revolution is not just about algorithms. It is fundamentally tied to hardware. Since 2022, the U.S. has progressively banned the export of advanced NVIDIA chips to China, citing national security concerns. These restrictions reached a fever pitch in June 2026, when the Commerce Department blocked all foreign nationals from accessing models like Claude Fable 5 and Mythos 5. The move forced a global suspension of these models, demonstrating the far-reaching impact of U.S. export controls.
China’s response has been strategic. Huawei’s Ascend 910B, while still behind NVIDIA’s H200 or even H100, is now powering notable Chinese AI advancements. China’s leading semiconductor manufacturer, is inching closer to advanced nodes, though it still lacks access to top EUV lithography techniques mastered by Dutch firm ASML. To accelerate self-sufficiency, China has poured nearly unlimited money and effort into its semiconductor industry, aiming for a vast majority of domestic AI workloads to run on local chips within a few years. US restrictions, intended to cripple China’s AI ambitions, have rather accelerated its drive for self-reliance. Meanwhile, American firms like NVIDIA and AMD are progressively losing access to the lucrative Chinese market, as Jensen Huang recently acknowledged.
This semiconductor race is not only about economic competitiveness, but also technological sovereignty. The US has long relied on its ability to control the flow of advanced chips to maintain its technological edge. But as China builds its own ecosystem – from chips to cloud platforms – it is creating a parallel market where its tech industry can thrive with fewer and fewer US components. The result points to an increasingly bifurcating global tech order, with implications on standards, supply chains, and alliances.
These innovative strategies echo those employed by European nations – like France under Charles De Gaulle’s presidency – to catch up with American technologies, until a deep cultural shift allowed critical dependencies to go unchecked, culminating in the current industrial impasse.
From AI to the New Military-Industrial Landscape
The competition in AI and semiconductors is increasingly spilling over into military and strategic domains. It is visible in the rise of asymmetric warfare, where nations like Iran have demonstrated how low-cost, mass-produced systems can effectively challenge US and Israeli military superiority.
China, too, is leveraging its technological advancements for military purposes. Its civil-military strategy ensures that breakthroughs in AI and semiconductors benefit its defense capabilities. Hypersonic missiles, autonomous drones, and AI-driven cyber warfare tools are examples of how China is combining commercial and military technology. This constitutes a key advantage in the new bloc confrontation, where the ability to rapidly deploy and scale advanced systems can determine the balance of power.
Decades of deindustrialization have left the US and Europe dependent on global supply chains for critical technologies, from rare earth materials to advanced semiconductors. In the US and to some extent in Europe, chips acts are attempts to rebuild semiconductor capacity. Yet, for now, TSMC in Taiwan remains the linchpin of the global chip supply chain, leaving clients vulnerable to disruptions. Meanwhile, China’s increasing ability to produce its own hardware, however lagging behind some of the latest American designs at this point, gives it a degree of resilience that the US currently lacks. The democratization of military technology, driven by advances in AI, drones, and missiles, means that an increasing number of countries can now challenge traditional military superpowers.
The Future of Tech Diplomacy
As the AI and semiconductor competition intensifies, the Global South is emerging as a critical political battleground. The World AI Conference in Shanghai was not just a showcase for China’s technological prowess, but a platform for its technological diplomacy. By positioning itself as a leader in open-source AI, China is appealing to developing nations that are eager for affordable, accessible alternatives to Western systems.
For many, the choice between expensive, proprietary American models and cheaper, open-source Chinese alternatives is a no-brainer. African and Southeast Asian startups, for example, are increasingly adopting Chinese AI models for applications in agriculture, healthcare, and finance, where cost and accessibility are essential. By offering training, funding, and infrastructure support, China is cultivating a network of partners that progressively reshape the global tech landscape.
The future of international power will be determined by mastery of AI, semiconductors, robotics, and industrial production. Europe, in particular, must return to the engineering culture that drove its post-war industrial success – before mass bureaucratization, misguided industrial policies lacking scientific culture, and the importation of the US cultural crisis, without its top scientific programs or funding.
Power will also be shaped by the nations who can offer the most compelling narrative for the world’s technological future outside of unsustainable financial trends. China’s open-source gambit is a clear signal. In a more multi-polar order, the ability to provide accessible, innovative, and inclusive tech solutions will be essential.