Inside the U.S.-China AI Race, From BABA New Chip to Regulation Efforts

SPEAKER_1 (0:00)

To discuss the latest in the U.S.-China AI arms race, let's welcome in our next guest, Henry Greene, Senior Investment Strategist over at Crane Shares. Henry, so nice of you to join us this afternoon. Thank you so much for your time, and great to have you on today of all days, because obviously we've had this news around Alibaba, but also Tencent as well. I mean, it's benefiting from this kind of news-driven rally, but also some of its own announcements. I mean, what do you make of these developments out of the Chinese and the timing, these aggressive expansion plans at a time when all we're talking about right now here are the US AI slowdown fears?

Henry Greene (0:36)

Yes, Sam, thank you. Nice to see you. I think it's very telling. China is moving very fast on AI. These companies are investing a lot of capital. They're starting to invest more, which we think is a great sign. They weren't investing as much as the US had been. Look, I don't think AI is gonna kill us all.

I think that there might be some bad actors who try to do bad things with AI, and I think we should have global rules to protect AI safety. And I think that the US understands that, and I think China understands that. And hopefully when Trump and Xi meet, they'll be able to discuss this in some capacity. I don't think we should have too high hopes for that, but we should get some clarity on what they're gonna do to safeguard just a little bit for AI. But I think China's continuing to forge ahead. And if the US slows down, then that's a win for the Chinese suppliers and the Chinese AI companies, right? And so yeah, we're really looking at where you have a situation where Chinese tokens are so much cheaper than the US tokens, that you're actually seeing US and global businesses choose to buy models from, let's say, Alibaba's QN, which we've seen being used by multiple US corporations, including Airbnb.

So we're very bullish on the Chinese model space.

SPEAKER_1 (1:57)

Yeah, you're not the first person to actually highlight that to me either. I was having a conversation with the folks over at EMQ a couple of weeks back, who was also pointing out that Airbnb is among one of those US companies that are using Chinese models. You wouldn't know it.

In fact, they were sort of saying that 80% of US startups are using cheaper models from the Chinese as well. What does that tell you and do you foresee a situation in the future where there could be some regulatory risk coming from either side?

Henry Greene (2:32)

Well, I think it tells you two things. I think number one, these models, these cutting-edge models are just not necessary for all business purposes. If you were to use Anthropics' latest model to do something as mundane as directing calls, that would be like driving a Ferrari just to get to the grocery store. Businesses are realizing this and making the business decision to spend less and look for other alternatives. The market will find an equilibrium price at some point. We think that will benefit the profitability of the China side of this, which is well-represented now in our KWeb ETF, China Internet ETF ticker KWEB.

We're going to see that well-represented hopefully in their profitability, but the profitability of OpenAI and Anthropic may be a little bit more in question, given what they're currently charging for tokens.

SPEAKER_1 (3:27)

Yeah, I love the Ferrari analogy as well. I've heard something similar too, because I guess the story is, it doesn't matter what car you drive, if it's the 12-year-old Ford Fusion or the brand new Ferrari, you still pay the same toll when you're going along the highway. That's really fundamentally the narrative here and the argument when it comes to tokenization.

When you talk about the debate about what the US and China are doing, who's winning, who's playing catch-ups, I guess it's easy to assume that China is taking a very different approach when you hear of the developments like we heard around Alibaba. But at the end of the day, it might be a bit specious, I don't know, to say that they're taking a different strategic approach when they are dealing with the same risks. I mean, you know, they have CAC over there, which heavily regulates the industry. They've got their own risks that they are dealing with too. Is that what you're seeing? I mean, is it a bit too out there to just assume that China is doing something different to the US?

Henry Greene (4:36)