A U.S.-China debate that’s becoming bigger than tariffs

Hello, I’m Evelyn, writing to you from Beijing. Welcome to the latest edition of The China Connection, a snapshot of what I see and hear from local businesses.

As Chinese startups develop new AI models and more American startups use them, risks in U.S.-China relations are rising.

China’s role in artificial intelligence is changing rapidly.

Minister Xi Jinping artificial intelligence speech on July 17 and conflicting release related to Claude Fable 5 rival Some K3 was just the beginning. US government backlash against Chinese open source models ignited calls He opposes “premature restrictions” in an open letter on Friday Nvidia’s Jensen Huang and more than 20 technology companies.

“In my view, the launch of the Kimi K3 has set off a hornet’s-eye debate in Washington about what to do about China’s open-weight models,” said Ryan Fedasiuk of the American Enterprise Institute.

The debate will soon be tested at a high level.

In statements regarding an issue late last week US data center policyUS President Donald Trump said: he is planning He is to discuss artificial intelligence with Xi during his visit to the United States in late September. China’s foreign ministry responded by saying Beijing’s We are ready to work with the USA on artificial intelligence.

Lex Zhao, a Chinese-born venture capitalist who oversees $150 million in assets as the Boston-based managing partner of One Way Ventures, said it will be “very important” whether the two countries become more collaborative or adversarial on technology.

“The reality is that many American startups are using Chinese AI models,” he said. “Many of the companies we invest in are built on these models.”

Zhao believes that the US and China have “too much influence” against each other, which will limit their actions on artificial intelligence.

Such commercial interdependence turns the technology issue into a diplomatic one for Washington.

This month, China hosted not only the World Artificial Intelligence Conference in Shanghai but also APEC Digital Weeks in Chengdu, where nearly two dozen top technology officials gathered, including from the United States.

George Chen, partner and head of digital practice at consultancy The Asia Group, attended both events.

“Beijing now sees AI as a new type of diplomacy to gain more allies and partners,” he said, adding that the Trump-Xi summit in Washington DC in September will be the first time the two leaders can discuss AI diplomacy issues.

China’s technological advances come despite four years of effort US restrictions on access to advanced semiconductors for AI training. Enthusiasm for powerful new models is still limited by computing power.

Earlier this month, artificial intelligence consultant Shu Weibing said he visited Zai‘s offices, only to find a three-month waiting list for companies looking to use the startup’s most advanced features. GLM5.2 Coding tools released in mid-June. Z.ai did not respond to a request for comment.

And just a few days after Moonshot released the Kimi K3, the startup said: pause new subscriptions due to computing power limits.

China is pouring resources into domestic computing capabilities. Za.ai is powering a giant 1-gigawatt data center, said a source familiar with the matter. approved to CNBC.

But the pace of AI publications in China has convinced slightly more Americans, even as of late June. China is more developed than the USA According to a Pew Research survey on the development of artificial intelligence. A separate Pew study in early July found that: Nearly half of Americans disagree With both Democratic and Republican policies regarding AI.

US-based Hugging Face even said it should use Z.ai’s GLM 5.2 against a cyber attack by a rogue OpenAI model.

“The incident makes clear why open source is so essential to the American enterprise and that it would be foolish to shut it down,” Fedasiuk said, “I think it is possible to identify a middle ground here.”

This comes amid claims by US companies that Chinese developers stole AI capabilities from startup Thinking Machines Lab, the most advanced US open source model ever. Used DeepSeek and Kimi in the development process.

Other countries are also watching closely. APEC representatives meeting in Chengdu issued a statement on Thursday supporting open-source artificial intelligence models that “use strong security assurances.”

Even if discussed within two months by the leaders of the world’s two largest economies, it is unclear whether the policy would gain the upper hand in the fast-paced artificial intelligence race.

One Way’s Zhao said the best practice among businesses is to use systems that give them the option to switch between different models, rather than relying on just one model.

As Chinese models develop and spread, it may become difficult for companies in the United States and elsewhere not to build on them.

Geely will produce electric vehicles at Ford’s factory in Spain as part of the new joint venture

The joint venture is expected to include: The companies said Ford will be offered a new electric crossover “in addition to a new member of the Bronco family, as well as two electric Geely SUVs, with production starting in 2028.” As growth slows in China, auto sales are heading for their worst year since 2021.

July 30: Chinese Politburo policy meeting expected

July 31: Official manufacturing PMI

August 3: RatingDog China General Manufacturing PMI