How China Wins The AI War

Ed Elson speaks with Alice Han about where the AI race between China and the U. S. stands today. She breaks down DeepSeek’s $50B valuation, where the U. S. still holds an edge, and how China’s chips really stack up to Nvidia’s. Finally, Ed explains why AI might be making us all dumber. Alice Han is a Director at Greenmantle and Co-Host of the China Decode Podcast. Get your tickets to the Prof G Markets tour Subscribe to the Prof G Markets Youtube Channel Check out our latest Prof G Markets newsletter Follow Prof G Markets on Instagram Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Speaker 00

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• 1:29Ed Elson?

  Today's number? Fifteen. That's the percentage of Americans who say they'd be willing to take a job where their direct supervisor is an AI program. We're not sure if that tells us how good American AI has gotten or how bad American bosses are.

• 1:46Speaker 05

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• 1:52Speaker 06

  Show goes on! The first American watch, the show, show!

• 1:58Ed Elson?

  Welcome to Property Markets. I'm Ed Elson. It is May 7th. Let's check in on yesterday's market vitals. The major indices extended their rally on reports that the US and Iran were reviewing a deal to end the war and gradually reopen the Strait of Hormuz. That news also sent Brent crude tumbling. Treasury yields also dropped. Meanwhile, AMD stock soared nearly 20% after the chipmaker beat expectations and raised its guidance.

• 2:29Ed Elson?

  Okay, what else is happening? Chinese AI startup DeepSeek is targeting a $50 billion valuation in its first ever fundraising round. Leading the financing is China's biggest state-backed semiconductor investment vehicle known as the Big Fund. The country's goal? Build a full-stack AI ecosystem that can rival the United States. DeepSeek first grabbed Wall Street's attention last year with R1, a powerful model that was built at a fraction of the cost of leading Silicon Valley LLMs. And last month, it released V4, a model that is now competitive with top US players on a number of benchmarks.

• 3:10Ed Elson?

  So, here to discuss DeepSeek and the state of the US versus China AI race, we are speaking with our friend Alice Hahn, director at Green Mantle and co-host of the China Decode podcast. Alice, thank you for joining us again. I kind of want to start with the valuation here, $50 billion, because at first glance, it seems quite low when you compare it to Anthropic, which is trading at a trillion, ChatGPT, OpenAI, sorry, also trading at a trillion on the secondary markets. These companies are ready to go public. And then I also know that this is an extremely powerful model. It's extremely popular. It's the leading model in China. So I guess that number, $50 billion, strikes me as small.

• 3:55Ed Elson?

  I guess, would you agree? And then also, what else strikes you about this news?

• 3:59Alice Han?

  I completely agree, Ed, but this is a feature, not a bug, of Chinese valuations. Even if you look at Chinese tech companies historically, the valuations at the forward P is much lower than what you see in the Mag 7, what you see in the US. This is a feature of Chinese capital markets just not being as developed as they are in the US. And more importantly, in terms of the fundraising for DeepSeek itself, yes, there will be some private fundraising, but it's largely, I think, going to be state-led as opposed to what you're seeing in the US with the Anthropics and the OpenAIs of the world. So I think it's completely reasonable and within the bounds of what I expect, that this valuation is, you know, orders of magnitude lower than what we're seeing in the States.

• 4:43Alice Han?

  More importantly, I think, when you look at the capabilities, what has been interesting is that it is now announced, DeepSeek V4, that it can do a 1 million token context window. This is comparable to Gemini and what we're seeing out of Anthropic. And OpenAI, but there's big, big questions moving forward about the hardware side of things, which we can get into. Will DeepSeek be able to access via Huawei and elsewhere? The kind of chips it needs to continue to power its models?

• 5:13Ed Elson?

  Well, this is, that is exactly where I would like to go. And actually, I want to play a clip for you. This was an exchange recently between Jensen Huang and Dwakesh Patel, who had Jensen Huang on his program. And they were talking about China and the fact that Nvidia has been selling chips to China. And it got quite heated and it really pressed on this exact issue of should we be selling chips to China if they're going to use those chips and use them to develop extremely powerful L L M's and A I models? Let's just play the clip and get your reaction.

• 5:51Speaker 08

  The day that DeepSeek comes out on Huawei first, that is a horrible outcome for our nation.

• 5:57Speaker 09

  Why is that? Because I mean, currently you can have a model like DeepSeek that can run on any accelerator. Why would that stop being the case in the future?

• 6:02Speaker 08

  Well, suppose it doesn't. Suppose it optimized for Huawei. Suppose it's optimized for their architecture. It would put ours at a disadvantage. You described the situation. A company develops software, develops an A I model, and it runs best on the American tech stack. I saw that as good news. You, you set it up as a premise that it was bad news. I'm going to give you the bad news. That A I models around the world are developed and they run best on not American hardware. That is bad news for us.

• 6:30Ed Elson?

  So I guess this, the striking thing here is, one is how uncomfortable Jensen Huang appears to be when he gets this question about China. I mean, this is the first time I've seen him as defensive as, as he was in this exchange. But it does get to the heart of that question, like, should we be selling chips to China? And also, where are we in that stage? Because we know that the policy has gone off, on, off, on. We keep on changing our minds. Uh, if you could just dive into all of that for me.

• 7:02Alice Han?

  Yeah, well firstly, I'm a big fan of both Jensen and Dukesh and I listened to that very attentively, um, very recently. I would say just to break it down a little bit, what is important is that Huawei's Ascend nine fifty PR, which just came out and it's been powering the DeepSeek V four. The big bike companies like ByteDance, Baba, Tencent are now rushing to order these chips. These are inference chips. And so just looking at the stats alone, uh, they can perform better on inference by two point eight seven times more than the existing Nvidia chips that can be sold to China. These are the H twenties, not the H two hundreds, although those have been approved. China hasn't allowed those imports as of yet.

• 7:44Alice Han?

  And secondly, they improve the multimodal generation efficiency by sixty percent. So just looking at what is available from Nvidia compared to Huawei, apples and oranges, Huawei is doing better on the inference side of things. But if you compare that to the H two hundreds, or if you compare that to the Rubens, Huawei is still a great deal behind. But it seems like Beijing is trying to prioritize a domestic ecosystem, a domestic, um, marketplace of inference chips, such that it will no longer have to rely on Nvidia. So basically, exactly what Jensen Huang expressed as his big fear to Dukesh, which

• 8:24Alice Han?

  is that if you continue to push China, uh, with, for instance, this chip export controls, the chip equipment export controls that just recently have been announced, uh, against uh, Huawei, which is a major Chinese semiconductor company, then you incentivize across the supply chain, uh, China to say, hey, we are not going to import your next generation, uh, although they will be outdated of chips, we want to, uh, prioritize what is coming out of Huawei and SMIC. Now, what does that mean for Chinese AI companies? It means that, yes, to some extent, the performance will be behind, uh, what you see in America, but the way that I think about it is that it creates good enough alternatives.

• 9:07Alice Han?

  China is prioritizing inference and inference is still an open game in terms of the chip making capabilities. Yes, Nvidia is really the king when it comes to the training side of the chip infrastructure, but it's still unclear whether or not it can be the winner when it comes to inference chips. And here I think the Chinese companies like Huawei and SMIC could really give Nvidia a run for its money in the long term. But right now Nvidia is the clear leader. A lot of US companies like Broadcom, AMD are also clear winners. The last thing that I will end on is that currently there isn't enough chips being produced domestically by Chinese chipmakers to meet the demand on compute and inference. And that is going to be in the

• 9:52Alice Han?

  short term the biggest bottleneck. China ordered, these Chinese companies rather, ordered 2 million H200s earlier this year because there was so much demand for its AI models. None of that has been approved, obviously, by Beijing. Right now Huawei is saying that it can do 750,000 units of its Ascend chips. If you just look at the numbers alone, and if you even look at sort of the longer term statistics on how many chips China can produce and the compute output, China is, by some estimates, only going to be able to produce 2% of what Nvidia and TSMC can

• 10:31Alice Han?

  produce in 2027 by looking just at compute outputs. That is, I think, huge. But right now, the political priority trumps what is efficient, and the political priority from Beijing is to kickstart a domestic ecosystem that will be able to rival Nvidia long term.

• 10:50Ed Elson?

  So just going back to some of those chips that you mentioned there. So you've got the Nvidia H20, which was the chip that was essentially designed to be a dumber, slower chip than the highest end that is created by Nvidia. That was designed for China. And you're telling us Huawei's now got a chip that is three times more powerful on the inference perspective, almost three times more powerful. So they're not interested in those H20 chips so much anymore, it seems, but still significantly behind the H200 and the Ruben, and those are

• 11:23Ed Elson?

  Nvidia's really fantastic chips and they're still behind on that front. I guess the question then becomes like, how far behind are they? And also, how, how quickly have they improved recently? Because Huawei, I mean, it was a name in the AI world, but not that big of a name. And suddenly it seems to be gaining a lot of momentum and a lot of steam. As an observer, I'm reading about it a lot more. I mean, are they getting close to a point where they could actually rival Nvidia's most advanced chips, which we do not allow to go to China?

• 11:58Alice Han?

  They're not yet close, but there are smart workarounds. So firstly, on the training front, obviously, there's a lot of news about Chinese AI companies distilling models coming out of Anthropic and OpenAI. That helps them, it's almost as if it's a student cheating on an exam and it's just copying a smarter student, right? This is what is allowing them to really catch up. On the inference front, and the inference is really, you know, when a student, having learnt the information, takes the exam. So it even adds to the queries that you give to, say, an LLM or to an agent. Here, Chinese models are actually doing extremely well. And I think the long-term bet is that if Huawei can produce a lot more in terms of chips, it can do these clusters.

• 12:42Alice Han?

  And you may have heard of this idea of this cluster architecture. So for instance, if a Huawei chip is 10 times less compute efficient than an Nvidia chip, maybe you cluster 10 of them to equal the equivalent of an Nvidia. That, I think, will be the long-term bet. A lot of it rides on how much capacity Huawei and SMIT can do. Right now, and this connects to Iran, there is a real risk that helium, for instance, which is critical for chip making, is actually going to be a bottleneck and a headwind for Chinese chipmakers. Another thing that could be a headwind is if the US decides it's actually going to do more restrictions on chip equipment. China's even more reliant actually on the chip equipment providers, like AMD, for instance,

• 13:27Alice Han?

  and ASML. If there are more restrictions there, that could again set back China's domestic chip production.

• 13:35Ed Elson?

  We'll be right back after the break. And by the way, we are heading out on tour at the end of the month. So if you want to get tickets to a show near you, head to profitemarketstour.com. It's going to be a lot of fun.

• 13:54Speaker 00

  This episode is brought to you by Michelob Ultra. Good times mean competitions between you and your friends, like seeing who can throw some pigskin the farthest, or rush the field the fastest. Winner gets an Ultra. Because it's not just a superior-like beer, it's also giving fans superior access to their favorite sporting events. Superior is worth playing for. Visit michelobultra.com/superioraccess to enter. Enjoy responsibly. Copyright 2026 Anheuser Busch InBev Michelob Ultra Beer, St. Louis, Missouri.

• 14:22Speaker 01

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• 14:32Speaker 02

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• 14:39Speaker 01

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• 15:26Ed Elson?

  We're back with Prof G Markets. When you think about all of the different, I guess, pieces of leverage, or I guess all of the different races would be the right way to describe it. I mean, you've got compute capability.

• 15:42Ed Elson?

  America's winning on that front, it seems. You've got energy, you've got supply chain, you've got, I think, access to the Strait of Hormuz seems to be increasingly an important piece of this. And when you think about all of the different fronts on which the AI war is being waged, on which of them is China winning against America and on which of them is America winning?

• 16:08Alice Han?

  So I think about it as a five-layer cake. And in this regard, I was happy that Jensen Huang also had a similar framework, you know, from upstream to downstream. So we start from the upstream, which is going to be, you know, basically the rare earths that are used, for instance, that power semiconductors and data centers. This is where China has, you know, huge dominance. We've seen that as of last year as well with the export restrictions. The second layer that we're going to look into is the energy layer, where China, again, has, it seems, on the electricity front, a great deal of leverage. It has, you know, twice the amount of electricity output that the Americans have.

• 16:51Alice Han?

  And that is going to be a bottleneck for American data center rollout as well moving forward. Number three is the data center infrastructure layer, where the US has done exceptionally well. China will only get to 60 gigawatts, it's targeting by 2030. The US is basically already there as of now. And then the fourth layer is going to be the models themselves, where, again, you know, based on the status quo right now, the US is still leading, although that gap is at times closing because Chinese models are getting more efficient, they're distilling and improving at a rapid pace. And then it's the application layer, where I actually think it's a bit of a mixed bag. China is making really interesting applications.

• 17:36Alice Han?

  This is why Meta wanted to buy and failed to buy Manus, it's a Gentic AI that came out of mainland China and moved to Singapore. I think there will be really interesting applications coming out of China, especially on the agentic front. They could rival what you see in America. It's not just an LLM game, and that China has proven that. So I see it as a five-layer cake. Right now, it's really mixed across the board, but China tends to dominate on some of these upstream as opposed to downstream.

• 18:08Ed Elson?

  You mentioned Manus, this company that Meta was trying to buy as a Chinese company, or I guess a Singapore-based company, but has Chinese roots, and then Beijing banned it, which seems to lend itself to the argument that this is becoming quite a hostile race. It's fully a competition. If America tries to get access to stuff that's happening in China as it relates to AI, Beijing will ban it, they will stop it. Same thing is true over in America. And an analogy that I am increasingly hearing when it comes to the AI race is that it's sort of like getting your hands on a nuclear weapon. And this is more and more relevant, the more we hear in the headlines, I mean, Anthropic coming

• 18:53Ed Elson?

  out with Mythos, and we learn that there's this AI technology that could hack every single cybersecurity system in the world, it could literally bring the infrastructure, the digital infrastructure of a nation to its knees. It's seeming more and more that maybe it's a fair comparison, but I don't know, maybe it's a bridge to fall. Do you think that that is a reasonable analogy when it comes to the AI race?

• 19:19Alice Han?

  Just to clarify, which analogy in particular are you referring to, Ed?

• 19:23Ed Elson?

  The nuclear weapon.

• 19:25Alice Han?

  The nuclear weapons. You know, Kissinger, before he passed away a couple of years ago, wrote a book, as you probably know, with Eric Schmidt, in which he basically said that AI and autonomous weapons was going to be what nuclear weapons were during the Cold War when he was Secretary of State and National Security Advisor. And he was deeply worried, so much so that he, in the last few years of his life, went to Beijing to speak with Xi Jinping and high-level officials to set up the framework for a strategic dialogue, which Biden did take up towards the end of his administration, a strategic dialogue between Beijing and Washington on AI arms controls. Now, there's an open-ended question as to whether or not when Trump meets with Xi likely next week in Beijing, if there

• 20:10Alice Han?

  is going to be a kickstart to that discussion, a new strategic dialogue will emerge. But I was just in Beijing last week, Ed, and what was very startling to me was the level of fear as to how

• 20:24Alice Han?

  Effective US AI technology has been in in in its application in the Iran conflict. Um. There was a lot of concern as well about, uh, you know, the use of Claude by the Department of War, by defense community in uh in America. And when Mythos came out, this I've seen a consternation in China about what that means for Chinese national security. One thing that I will end on um is that this is part of the reason why China has tried to make AI not just an economic issue, but also a national security issue. Uh, it also also made quantum a national security issue too. Quantum is also going to be key for decryption and encryption, to your point.

• 21:09Alice Han?

  If there is going to be a mythos that can hack into every system, quantum may be able to leapfrog that and create a new fortress. So these are all these ongoing concerns. But I think the uh view from Beijing right now is that there needs to be high level strategic discussion. I won't be surprised if after this meeting between Trump and Xi, there is a revival from the Beijing side about ongoing strategic dialogue concerning AI weapons, because right now, things do look very scary from China's vantage point.

• 21:39Ed Elson?

  Just going back to the the Dwokesh Jensen Huang interview. I mean, it seemed like there was sort of this miscommunication in the dialogue where on the one hand, the argument is being made to Jensen Huang that if AI is a nuke, if it is comparable to a nuke, you shouldn't be selling equipment that they are going to use to go and build that nuke and therefore nuke America. Uh, and then he's saying, no, they're already gonna, they're already building it. They they have the ability. So do they, do we want them to be using US made equipment? Or do we want them to be using China made equipment? Which I feel like didn't quite get to the heart of the disagreement.

• 22:24Ed Elson?

  And something I was thinking about this, and I'd like to hear your thoughts. I mean, running with the nuke analogy, China has nukes.

• 22:33Alice Han?

  Yeah.

• 22:34Ed Elson?

  They haven't dropped them on the US. And the reason they haven't dropped them on the US, I think, is because they don't want to.

• 22:41Alice Han?

  Mutual assured destruction.

• 22:43Ed Elson?

  Mutually assured destruction. And so to me, I just, it seems as though this question of the AI race between America and China, increasingly, it's not actually about the technology, it's about diplomacy, and it's about the relationship between the two. And it's about getting us to a place where China doesn't feel that there is any reason to drop the AI equivalent of a nuclear bomb on America. And it seems to be that that's the trajectory where this is headed. This is a political discussion, not a technological one. I'd just be interested to get your thoughts on that and how this, how this topic is kind of evolving.

• 23:21Alice Han?

  I love that question. As I was listening to that podcast, it was clear that neither of them were historians or politics majors as they approached the question. Because as you know, Ed, China built the nuclear, with no American help. It was largely Soviet aid. And then they had engineers, physicists who came and built it. By 64, they surprised the world by launching a successful nuclear test in China. That shows you historically that, you know, China can, in this AI age, create its own AI capabilities without American largely support or input. I think what they confuse is this question, can, in the meantime, Wall Street monetize

• 24:06Alice Han?

  China's AI development? Clearly, Jensen has an incentive to make that case, which benefits parts of America. But regardless of that argument, China will find a way to create a rival AI system. If that AI system is antagonistic or not, that question and its answer resides on your point, Ed, which I completely agree. Is there going to be continued strategic dialogue and diplomacy? Kissinger understood this, and he was harping on about it even towards the end of his life. And I think it would be very, very sad and ultimately tragic for humanity if we don't have Washington and Beijing continue discussion about their capabilities and intentions

• 24:48Alice Han?

  as it pertains to AI. And more importantly, if there isn't track to diplomacy where these Chinese tech companies are also involved, because you also need experts in the room to help both sides assess the capabilities. My concern right now is those two sides, both on the expert side, as well as on the diplomatic side, are very far apart. And that, as Kissinger rightly predicted in his last book on AI, is going to create massively tragic outcomes that we have yet to see far greater than we have yet to witness in our lifetime. But if we do ultimately come to a point where there is mutually assured destruction in AI, then we may be able to achieve equilibrium. But that rests on both

• 25:31Alice Han?

  sides having extremely strong and telegraphed AI capabilities.

• 25:36Ed Elson?

  Alice Hawn, director at Greenmantle, co-host of the China Decode podcast. Alice, Trump and Xi are likely to meet next week. Maybe we'll get some answers when that happens. Thank you so much for joining us.

• 25:48Alice Han?

  Thanks so much, Ed.

• 25:54Ed Elson?

  Here's a question for you. Is AI making us dumber? That is the question our research lead Mia Silverio asked in one of her recent Substacks, and her findings were pretty conclusive. The answer is yes. According to Dr. Jared Horvath, a neuroscientist who recently spoke in front of Congress, every generation in history has been smarter than their parents' generation, except for Gen Z. Young people underperform on, quote, "every cognitive measure," from IQ to literacy to basic memory skills. One look at the data will confirm that this is indeed true. Roughly half of American 12th graders are now scoring below

• 26:39Ed Elson?

  a basic level of math, and roughly a third of them don't have basic reading skills. In fact, that is the worst rating that we've seen among that group in three decades. But it isn't just America. Over the past two decades, science, math and reading scores among teenagers in high-income countries have all fallen nearly 5%. Meanwhile, literacy rates for adults have fallen roughly 3%. In sum, yes, we are literally getting dumber. Now, is this just because of AI? No. As Mia points out, there are other factors such as social media addiction and also the pandemic, which stunted learning for millions of children around

• 27:24Ed Elson?

  the world. But we should also acknowledge the extent to which AI is still playing a role here and the fact that it actually is accelerating the trend. One study found that students who use AI tools for homework assignments experience a 55% reduction in overall brain activity, which means that when you use ChatGPT, your brain is actually more impaired, more suppressed than if you were to be twice over the legal alcohol limit. However, unlike alcohol where your brain can actually recover over the long term, the impairment effects of using AI appear to compound even after the AI tool

• 28:05Ed Elson?

  is removed from usage. In other words, every student in America is effectively operating as if they were a drunk driver. So, will AI make us more productive as a society? Probably. But will it also make us dumber as a society? Certainly. In fact, it already has. If you want to read more about this, you can go check out Mia's work at substack.com/miasilverio. She discusses this trend in detail and also many other interesting trends in business and in the economy. That post is called "Is AI Making Us Dumb?" The answer is yes.

• 28:48Ed Elson?

  Okay, that's it for today. This episode was produced by Claire Miller and Alison Weiss, edited by Joel Patterson and engineered by Benjamin Spencer. Our video editor is Brad Williams, our research team is Dan Shalane, Isabella Kinsel, Chris Nodinehue and Mia Silverio, and our social producer is Jake McPherson. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson and tune in tomorrow for our conversation with Daniel Jürgen.