Passing the Baton

“Passing the Baton” – A cartoon that illustrates how the transition from developing AI software to hardware is one that America is likely to lose to China.

The race toward Artificial General Intelligence (AGI) has become one of the defining strategic contests between the United States and China. With AGI conferring leverage over industry, global standards, and military capability, both countries now treat frontier AI as a matter of national survival.

The U.S. has led in private investment. In 2024, American firms drew about $109BN dollars in private AI funding, versus China’s $9BN. China, however, spends more through the state. Beijing’s public-sector AI budget reached an estimated $15BN dollars in 2024, nearly double Washington’s $8BN.

China has proven unexpectedly resilient on the software front this year. DeepSeek-R1 launched on 20 January and demonstrated that Chinese open-source labs could deliver near-frontier reasoning performance at a fraction of U.S. cost. Moonshot AI’s Kimi K2 followed on 6 November. This is a trillion-parameter Mixture of Experts system with open weights and training costs reported around $4.6M dollars, far below the estimated $1.7BN required for models like GPT-5. Despite all of this, it’s unlikely that China will overtake the lead America has in software.

The real shift, however, comes when intelligence moves into hardware. This is where China holds the structural advantage. In 2024 it installed 54% of the world’s new industrial robots and now operates more than two million. Chinese firms, led by DJI, control roughly 70% of the global commercial drone market and dominate exports of military-capable drones.

As Nvidia CEO Jensen Huang warned, “China is going to win the AI race” if the U.S. cannot rebuild the industrial base required to turn intelligence into machines.