By Dr. Kalim Siddiqui

China has recently showed the world its DeepSeek technology that performs better than the U.S. AI Chat GPT and did so at a fraction of cost. An open-source artificial intelligence (AI) model developed by Chinese, offering similar performance to other leading models at a fraction of the cost. However, the breakthrough has not been without controversy.

I. Introduction

It is fascinating to examine China’s rapid development of new technologies and scientific research in recent years. This evolution not only provides insight into the nature of its progress but also highlights its impact on global economic shifts and its challenge to nearly three centuries of Western hegemony (Siddiqui, 2024a). Moreover, the proliferation of new technologies and the increased access to higher education for the Chinese people are driving productivity and growth, thereby enhancing the competitiveness of Chinese products in global markets (Siddiqui, 2024b).

While the United States (U.S.) government offers substantial subsidies and tax cuts to its large corporations, the country continues to face a decline in productive investments. Many U.S. companies struggle to innovate and are often reluctant to invest in technological development—a crucial factor for continuous progress. Additionally, monopolistic ownership structures can hinder the diffusion of knowledge for the public good. Rather than relying on Intellectual Property Rights (IPRs) to maintain a leadership position, continuous innovation should be prioritized, as overreliance on IPRs may inadvertently stifle the spread of new ideas.

Economic crises often trigger a process known as creative destruction, wherein outdated industries and technologies are replaced by new ones, paving the way for fresh growth (Siddiqui, 2023). For example, the advent of computers more than twenty-five years ago in the U.S. revolutionized productivity and transformed business operations both domestically and globally. As Joseph Schumpeter (1942) described it, this “process of industrial mutation… [that] instantly revolutionizes the economic structure from within, destroying the old one and creating a new one” exemplifies how innovation drives economic evolution.

Since the adoption of neoliberalism and globalisation in the 1980, the U.S. economy has gone through a huge sectoral change in its economy, where gradually the contribution of manufacturing has declined while the financial sector has increased in terms of revenue and employment generation. And investment and high skills are increasingly allocated to financial innovation, not industrial innovation.

Why China is succeeding and not the U.S. Under capitalism prime motivation is maximise profits and not for producing cutting edge technology (Siddiqui, 2022). Moreover, China has better financial regulated sector to promote and allocated money favouring social need and investments and the country has been able to introduce socially benefitted technology without private profits being an obstacle (So and Chu, 2015).

In the U.S. the rate of profit in different sectors decides future investment and private profits play important role in the investment decision of the capitalists but in China government decides, not capitalists, to invest in cutting edge technology. Government steps in to invest in crucial sector and as a result, the country has adopted better technology system and innovations.

China has developed a huge industrial base and has become an important global industrial power and needs more human development, equality and better environment. China has world’s 20% population and only 5% of the world’s arable lands (Siddiqui, 2024c). Therefore, land and water conservation, ecology and innovation of technology is crucial towards sustainable development.

Moreover, China has recently showed the world its DeepSeek technology that performs better than the U.S. AI Chat GPT and did so at a fraction of cost. An open-source artificial intelligence (AI) model developed by Chinese, offering similar performance to other leading models at a fraction of the cost. However, the breakthrough has not been without controversy. The AI assistant surpassed ChatGPT to become the top-rated free app on the U.S. Apple App Store, affecting the market values of major tech companies, including Nvidia. DeepSeek has claimed it’s as powerful as ChatGPT’s model in tasks like mathematics and coding, but uses less memory, cutting costs.

II. Why is China Succeeding While the U.S. is Falling Behind?

Since the adoption of neoliberalism and globalization in the 1980s, the U.S. economy has undergone a significant sectoral shift. Over time, the contribution of manufacturing has declined, while the financial sector has expanded in terms of revenue and employment. Increasingly, investment and highly skilled labour have been directed toward financial innovation rather than industrial innovation (So and Chu, 2015).

Under capitalism, the primary motivation is profit-maximization rather than the development of cutting-edge technology. In the U.S., the rate of profit across different sectors determines future investments, as private profits play a crucial role in capitalists’ investment decisions. In contrast, China takes a different approach—investment in cutting-edge technology is decided by the government rather than private capitalists. The Chinese government actively invests in crucial sectors, fostering a more effective system for technological advancement and innovation. Moreover, China’s regulated financial sector directs resources toward social needs and strategic investments, ensuring that technological advancements benefit society rather than being hindered by private profit motives (Siddiqui, 2023).

China has built a massive industrial base, positioning itself as a major global industrial power. However, for continued progress, the country must focus on social equality, and environmental sustainability. Its controlled market economy has yielded better results in fostering new technologies and innovations than the U.S.-led neoliberal model, debunking the myth that only private capitalists can drive innovation. For instance, China is leading in various emerging technologies, including solar panels, artificial intelligence (AI), and electric vehicles.

Recently, China showcased its DeepSeek technology, which has demonstrated superior performance compared to the U.S.-based AI model ChatGPT—and at a fraction of the cost. Developed as an open-source AI model, DeepSeek delivers comparable results to leading AI systems while significantly reducing expenses. However, this breakthrough has not been without controversy. DeepSeek quickly surpassed ChatGPT as the top-rated free app on the U.S. Apple App Store, impacting the market value of major tech companies, including Nvidia. The developers of DeepSeek claim that their AI assistant rivals OpenAI’s GPT-4 model in tasks such as mathematics and coding, while requiring significantly less memory and cutting costs. Notably, training the AI system reportedly cost less than $6 million in Nvidia’s computing power.

In 1978, China was one of the poorest countries in the world (Siddiqui, 2009). However, the economic reforms undertaken that year aimed to open the economy to foreign investment and technology while implementing domestic policies to foster competition and entrepreneurship in the agricultural and industrial sectors. These reforms spurred rapid industrial growth over the last four decades. As a result, China’s economic growth rates have consistently outpaced those of the United States and the European Union, leading to a significant global shift in economic power.

During the 1980s, when China welcomed foreign corporations, it also negotiated favourable deals regarding technology transfers and long-term investments. Over the years, Chinese companies have successfully advanced in key technological sectors such as electronics, machinery, automobiles, high-speed railways, and aviation. Additionally, China has been a driving force in emerging technologies, including renewable energy, advanced nuclear power, next-generation telecommunications, supercomputing, artificial intelligence (AI), robotics, and space exploration.

A 2024 study by the Australian Strategic Policy Institute (ASPI) used a tool called the Critical Technology Tracker to analyse 64 key technologies over the past 25 years. The study found that China has made significant progress in 52 of these 64 critical technological areas, particularly in the last decade. Chinese companies such as Huawei and Alibaba exemplify this rapid technological advancement (ASPI, 2024).

In 2003, Chinese President Xi Jinping declared that a major objective of his government was to promote industrial innovation through technological development, cutting-edge research, and enhanced productive forces.

It is becoming increasingly evident that the U. S. is losing its technological edge to China. According to a 2024 study by ASPI, China currently leads in 37 out of 44 key technologies, including electric batteries, hypersonics, and advanced radio-frequency communications such as 5G and 6G. In contrast, the U. S. remains dominant in only seven fields, including vaccines, quantum computing, and space launch systems. Furthermore, in 2022, the Chinese government allocated 20% of its budget to education, while Chinese households also invested heavily in education—amounting to nearly 50% of the government’s education budget. China has the highest number of students studying overseas globally, and the proportion of these students returning to China has been steadily increasing (Hurst, 2023).

China’s investment in science and technology research has risen sharply in recent years (See Figure 1). In 2024, the government announced a further 10% increase in funding. Additionally, the country is training a vast number of scientists. In 2020, Chinese universities awarded 1.4 million engineering degrees—seven times more than the U. S. did that year. China is now a leading scientific power, with its researchers producing some of the world’s most advanced work, particularly in chemistry, physics, and materials science (Economist, 2024).

Figure 1: Research and Development Expenditure in China, 2007–2021 (as a percentage of GDP).

Source: Great Wall Enterprise Institute, Research and Development Expenditure in China. https://daxueconsulting.com/market-of-high-tech-in-china/

Globally, the annual research share across 64 critical technologies (see Figure 2) reveals China’s rapid advancements in both emerging technologies and high-impact research. In recent years, China’s share in these fields has grown sharply, setting it apart from other developed economies. While China’s average research share across these 64 technologies has steadily increased, many other major developed nations have experienced declines in their contributions to these cutting-edge areas. This trend is likely to have significant repercussions for productivity, economic growth, trade, and overall economic performance. (Siddiqui, 2021a).

Figure 2: Average Annual Research Share of Major Economies Across 64 Technologies (2003–2023).

China has experienced a significant rise in its high-tech sector, rapidly emerging as a global leader in advanced technologies such as 5G, artificial intelligence, solar panels, and electric vehicles. This surge is largely driven by substantial government investments in research and development, a strategic focus on manufacturing, and an increased share in the production of high-value commodities. Initiatives like “Made in China 2025” have bolstered market penetration, allowing Chinese firms to capture significant global market share in various tech industries.

In addition, China has made notable progress in new technological fields, including high-performance computing, advanced integrated circuit design, and semiconductor chips. Despite these successes, the U.S. continues to lead in areas such as quantum computing, vaccines and medical countermeasures, nuclear medicine and radiotherapy, and genetic engineering. Today, Chinese companies are heavily investing in cutting-edge areas like artificial intelligence, quantum computing, robotics, and renewable energy. Prominent tech giants such as Huawei, Tencent, Baidu, and Alibaba are spearheading these efforts.

Table 1: High Tech Industry in China: Sector Ranking by Revenue, 2023 (in RMB and US$).

Source:https://daxueconsulting.com/market-of-high-tech-in-china/

According to recent statistics, China’s high-tech industry was valued at over RMB 26.6 trillion (US$ 3.88 trillion) in 2023. Notably, the data industries experienced nearly 10% average annual growth—a trend expected to continue through 2025 that could push the overall industry value to nearly RMB 35 trillion (US$ 5.11 trillion). Additionally, the advanced manufacturing and renewable energy sectors have grown rapidly, contributing RMB 2.6 trillion (US$ 380 billion) and RMB 2.5 trillion (US$ 360 billion) respectively (see Table 1).

Meanwhile, traditional economic powers such as the UK are struggling to keep pace with the swift transformation in research and development. Recent data indicate that the UK has dropped out of the top five rankings in eight technologies, with its presence declining from 44 instances last year to 36 this year—primarily in fields related to advanced materials, sensing, and space.

In contrast, the European Union (EU) remains a major player in top-tier research and technology. Over the past five years, the U.S., China, and the EU have consistently ranked among the world’s top five countries across all 64 key technologies. Other second-tier nations have maintained steady performance: Germany ranks in the top five in 27 technologies, South Korea in 24, Italy in 15, and Japan in 8.

In advanced technology sectors, leading U.S. corporations are setting benchmarks in artificial intelligence, quantum computing, and natural language processing. For example, IBM now ranks first in quantum computing, while Google leads in natural language processing and places fourth in quantum computing. Additionally, Meta and Microsoft rank seventh and eighth, respectively, in natural language processing.

China, meanwhile, has emerged as a major economic force with profound global influence. It is the world’s second-largest economy by nominal GDP and the largest by purchasing power parity (PPP), accounting for 20% of the global economy in PPP terms in 2023. Representing around 10% of world trade, China’s exports and imports have grown at an average rate of 15% annually since 1979—more than double the global trade expansion rate over the same period. Today, China is the largest global exporter of manufactured goods and remains at the centre of ongoing trade conflicts with the U.S., particularly following tariff announcements during the Trump administration.

China’s dominance in manufacturing is striking. It contributes nearly 35% of total global manufacturing output, compared to 16% for the U.S., 7% for Japan, 5% for Germany, and smaller shares for South Korea, India, Italy, France, and the UK. In 2022, China was the largest exporter—with goods valued at $2.7 trillion—and the second-largest importer of goods, at $2.35 trillion, with over 40% of its manufactured products sold overseas (IMF, 2023).

However, this rapid industrialization has environmental consequences. As the world’s largest emitter of carbon dioxide (CO₂), China plays a key role in global climate change mitigation. In response, the country has implemented policies aimed at decarbonization, achieving a 48.4% reduction in carbon intensity by 2021 compared to 2005 levels (Siddiqui, 2024e).

III. International Trade and Economic Expansion

International trade has been a crucial driver of China’s rapid output growth, especially since joining the World Trade Organization in 2001 (Siddiqui, 2023). In 2023, China was the world’s largest exporter, accounting for 13.7% of global merchandise exports, and the second-largest importer after the U.S., with a 9.3% share of global merchandise imports. In 2023, China emerged as the most significant importer of crude oil, representing over 20% of the world’s total crude oil imports by value. Additionally, it is a major importer of commodities such as aluminium, coal, copper, and iron ore—factors that give China considerable influence over global market prices. As the top trading partner for more than 120 countries, China’s robust trade activity is further underscored by its huge trade surplus, which reached US$577 billion in 2023. This surplus—US$384 billion with the U.S. and US$366 billion with the EU—has become a key point of tension in its international relationships.

China has also taken significant steps to expand its economic activities abroad through the Belt and Road Initiative (BRI), a mega infrastructural project launched in 2013. Involving over 60 countries with total investments of US$200 billion, the BRI is designed to boost global output, employment, and trade. It aims to reduce China’s dependence on sea trade routes dominated by the U.S. and to open new export markets for its growing industries. Despite some setbacks in implementation, the BRI is expected to play a transformative role in the future of world trade (Siddiqui, 2019).

Over the last four decades, China has experienced a dramatic surge in manufacturing—especially in sectors such as steel, automobiles, electronics, machinery, and textiles. These strengths have consistently placed China at the forefront of global manufacturing output. (Siddiqui, 2018).

In contrast, the U. S. remains a major manufacturing power. In 2023, U.S. manufacturing contributed over US$2.5 trillion, accounting for 12% of the nation’s economic activity and a significant share of its exports. The U.S. is renowned for its advanced manufacturing techniques and high-quality products.

Japan, with a population of 120 million, has built a reputation for its rich manufacturing heritage and advanced technology. As the third-largest manufacturing country, Japan generated US$1.2 trillion in manufacturing output in 2023. Its major export industries include consumer electronics, automobiles, computers, and semiconductors. Japan’s emphasis on precision and quality makes it a preferred destination for high-tech manufacturing.

Germany, Europe’s leading manufacturing nation with 83 million people, contributed approximately US$930 billion in manufacturing output in 2023. Renowned for its engineering expertise and robust industrial base, Germany is a key global player—especially in the automotive, machinery, and chemical sectors—owing to its efficiency and innovative practices.

India, home to 1.4 billion people, has seen a remarkable surge in trade, generating US$560 billion from manufacturing in 2023. Known for its strong IT workforce and expanding customer service sector, India is rapidly enhancing its manufacturing capabilities. Government initiatives and a large, skilled labour pool have contributed to steady growth in India’s diverse manufacturing sector, which spans textiles, automotive, and pharmaceuticals, positioning it as a dynamic arena for expanding business opportunities (Siddiqui, 2021b).

South Korea is another key contributor to high-tech industries. In 2023, its manufacturing output reached US$530 billion, with major exports including electrical equipment, automobiles, and petroleum products. South Korea’s advanced manufacturing techniques, strategic geographic location, and highly educated workforce reinforce its status as a significant manufacturing hub in Asia.

Russia, endowed with vast natural resources and a strong engineering tradition, contributed US$360 billion to global manufacturing output in 2023. With key sectors in aerospace, defence, and energy equipment, Russia’s manufacturing industry remains vital for its economic stability and growth. Despite various challenges, its focus on heavy industries and technology ensures that Russia continues to be a key player in global manufacturing.

IV. Conclusion

The development of new technologies alongside environmental protection underscores a critical shortcoming in the capitalist model. Relying on free markets and expecting capitalists to drive innovation for the common good has proven insufficient for achieving long-term, sustainable progress. Short-term, profit-driven interests tend to prioritize cost minimization and immediate returns, often at the expense of essential long-term investments in environmental protection and societal welfare.

In contrast, China’s model of government intervention and long-term planning has demonstrated greater success (Siddiqui, 2024d). Although the U.S. government provides substantial subsidies and tax breaks to large corporations, these measures have not stemmed a decline in productive investments. Moreover, U.S. corporations are often reluctant to invest in continuous technological development, and monopolistic practices can hinder the broad diffusion of innovative technologies that benefit society.

China’s approach, wherein the government directs investments in cutting-edge technology rather than leaving such decisions solely to market forces, has enabled the country to develop a robust industrial base. This strategic allocation of resources has allowed China to introduce socially beneficial technologies without private profit motives impeding progress. For example, China has emerged as a leader in sectors such as solar panels, artificial intelligence, and electric vehicles. A notable breakthrough is the recent unveiling of DeepSeek technology—an open-source AI model developed in China that reportedly outperforms its U.S. counterpart, ChatGPT, at a fraction of the cost.

In summary, China’s state-regulated financial system and targeted investments have not only bolstered its position as a global industrial power but have also enabled it to align technological advancements with broader social needs. This approach highlights the potential benefits of long-term public investment and strategic planning over the constraints of short-term profit-driven models.

About the Author

Dr. Kalim Siddiqui is an economist specializing in International Political Economy, Development Economics, Trade and Economic Policy. Since 1989, he has been teaching economics at various universities in Norway and the UK. Dr. Siddiqui’s research interests encompass a wide range of topics, including political economy, international trade, and economic history, South Asia, and emerging economies. He has presented papers at international conferences across numerous countries, reflecting his global engagement in the field. His scholarly pursuits span six broad domains: Political Economy, Development Economics, Economic History, Economic Policy, Globalization, and International Trade. Dr. Siddiqui has made significant contributions to research in areas such as trade policy, globalization, and political economy. His work has been published in chapters of edited books and articles published in peer-reviewed journals. For inquiries, Dr. Siddiqui can be reached at: [email protected]

References

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