“Chinese companies are offering artificial intelligence that is nearly as good as the leading U.S. technologies, but it’s still America’s race to lose.
The United States, by almost any measure, dominates the world of artificial intelligence. The most powerful A.I. systems are made in America. The United States has far more A.I. data centers than any other country. And a vast majority of the computer chips used to build A.I. were developed by American companies.
Perception, however, is a different matter.
In recent weeks, China has appeared to erode that sizable lead. The competition came into sharper focus last week when a Chinese start-up released a system nearly as powerful as the leading American technologies but costing a lot less. It was the second time in about a month that a Chinese company managed that feat.
In a speech on Friday, China’s leader, Xi Jinping, hailed Beijing as the champion of a new global A.I. order. “A.I. development should not be a solo performance by a single country but a symphony of international cooperation,” Mr. Xi said.
As it has with other cutting-edge technologies, from consumer electronics to electric cars, China is demonstrating that it can produce something almost as good but at a far more affordable price.
That strikes a nerve in Silicon Valley, where industry veterans know that when it comes to technology, good enough often beats best if it is a lot cheaper. That has been true since PCs replaced mainframes, and it could happen again with A.I.
But worries about China’s increasing A.I. prowess appear to be less about what technologists in that country are doing right and more about what the United States could be doing wrong. American companies could be building their product the wrong way. They could be spending too much and charging too much for their products. The Trump administration could also be needlessly meddling in the A.I. market.
“This is still the U.S.’s race to lose, but it is getting damn close,” said Rehaan Ahmad, a co-founder of the Silicon Valley start-up alphaXiv, who has been using the latest Chinese technologies for the past several weeks.
Last month, the A.I. start-up Anthropic shut down its two most powerful systems after the government unexpectedly demanded that the company bar access to foreign nationals, including its own employees. Anthropic’s close competitor, OpenAI, also said the administration had interfered with a recent release of its technology.
Like some A.I. researchers, administration officials were worried that the technology could drive cyberattacks or maybe even help build bioweapons.
The administration lifted its restrictions, but Anthropic and OpenAI still maintain strict control over who can use the technologies and who cannot. Executives at both companies have called on the government to regulate A.I. in some way.
On Friday, Mr. Xi specifically mentioned the so-called open source method that the Chinese companies use to develop their technology. It was a remarkable moment, in which a world leader appeared to be taking a side in a decades-long tech industry debate.
On one side are people who think new technology should be tightly controlled, and on the other are people who think it should be freely shared and distributed — the open source approach that Mr. Xi championed. Without open source, it would be extraordinarily difficult for Chinese companies to catch up.
“The most authoritarian government is producing the most egalitarian models, and what should be the most democratic government is breeding companies that are the most authoritarian,” said Rayan Krishnan, chief executive of Vals AI, a company that evaluates the performance of the latest A.I. technologies.
Companies like Anthropic, OpenAI and Google hope to recoup their aggressive spending by selling increasingly useful but often expensive technologies to businesses and consumers. China is offering similar technology free of charge. That means companies anywhere in the world — including in the United States — can operate Chinese technology at much lower costs.
On Thursday, a Chinese start-up, Moonshot AI, released a new A.I. technology that is nearly as powerful as the leading American model, Anthropic’s Claude Fable 5. In line with other Chinese A.I. companies, Moonshot said it would soon open source the technology, called Kimi 3. The start-up also sells a version as an online service, just as American companies do.
A day later, the tech-focused Nasdaq fell 1.4 percent and the S&P 500 fell 1 percent, with Alphabet, Google’s parent company, and Meta, the maker of Facebook and Instagram, dropping 2 to 4 percent. It was, in the minds of some tech experts, a silly overreaction.
“Nothing fundamentally has changed,” said Perry Metzger, a software developer who has worked on A.I. for more than two decades. “The problem is that the bulk of investors have no idea what it is that any of these systems actually do, or how any of the companies make their money, or what any of the news means.”
The Kimi model is at the cutting edge of open source Chinese technologies that are nearly as powerful as top American systems. Last month, another Chinese start-up, Z.ai, released a model that start-ups and independent developers across Silicon Valley rapidly adopted.
After its release, six of the 10 most popular A.I. systems on OpenRouter — a closely watched leaderboard of A.I. models — were Chinese technologies.
In some key areas, the latest systems from companies like Anthropic and OpenAI still outperform Kimi and other Chinese models, according to benchmark tests run by Vals AI and other independent companies. But because the top Chinese models are generally open source, they cost considerably less to use.
In early 2024, a third Chinese start-up, DeepSeek, first set off alarm bells among investors and tech executives with the release of a surprisingly effective open source system. Stocks took a similar tumble. Soon, companies like OpenAI accused DeepSeek and other Chinese companies of improperly harvesting data from their A.I. systems to accelerate the development of Chinese technologies.
Last month, Anthropic sent a letter to two U.S. senators accusing the Chinese tech giant Alibaba of “brazenly” and “illicitly” trying to copy its technology through 24,000 fraudulent accounts.
Using data from one system to train another — a process called distillation — is common in A.I. development, including in the United States. But the Anthropic and OpenAI terms of service forbid anyone to surreptitiously harvest data for distillation. Anthropic called on lawmakers and regulators to explore ways of curbing the practice.
Some experts believe, however, that distillation will become less important as companies build systems designed to operate as “A.I. agents” — digital assistants that can use other software to perform tasks. Training agents requires far more than just distillation, these experts say.
Other experts have long argued that Chinese systems will always trail the top U.S. models because U.S. export controls limit the flow of the specialized computer chips needed to train A.I. technologies.
But Moonshot, Z.ai and DeepSeek spend millions for access to chips in data centers outside China.
Various Chinese companies have also started to build their own specialized chips, and A.I. start-ups like Z.ai say they are beginning to use these chips at least as a way of augmenting the chips from the United States that they have managed to acquire.
Even as China sloughs off U.S. export controls and other restrictions, many U.S. executives, lawmakers and policymakers continue to call for regulations that tightly control the use of American technologies.
But some experts believe that these regulations could ultimately push more people toward Chinese models because they can use these technologies however they want.
“It is really hard for U.S. companies to operate when they know that the Chinese models are getting more and more powerful,” Mr. Krishnan said. “Something like Kimi 3 is purely open source. There is no way to control how anyone uses it.”” [1]
1. Why Silicon Valley Can’t Stop Looking Over Its Shoulder at China: news analysis. Metz, Cade. New York Times (Online) New York Times Company. Jul 20, 2026.