The true winner of the AI race, however, may not be the country that invents the best models. It is more likely to be the country where governments, businesses and ordinary people use AI at scale every day.

On that front, the race is closer than many in America believe.

The state, by one estimate, accounts for roughly half of the demand for DeepSeek's model. 

Local governments are already using AI for all manner of things, from rationalising hospital records to answering citizens' questions and finding missing persons.

With more demand and easier supply, Chinese consumers have lots of AI options. In the past year ByteDance has released at least seven apps with AI functions. Tencent has promoted its chatbot within its WeChat platform. They are hardly alone: American tech firms, from Google to Meta, are stuffing their products with AI-powered features. 

But Chinese consumers seem more aware of these changes than those in the West: 81% of them know which types of products use AI, compared with 39% of Americans, according to Ipsos, a pollster.

After the state and consumers, the manufacturing sector is the third big customer for Chinese AI services. This marks a radical departure from America. According to our analysis of information from PitchBook, a data provider, last year 3% of America’s venture-capital dollars in AI went into manufacturing. In China the equivalent share was 43%. 

Already China has a nearly 30% share of global manufacturing. It has more industrial robots per manufacturing worker than almost any other rich country. Now it is pushing ahead in new fields. 

Some industrialists in Asia see manufacturing as the area where China may break away most from America in terms of AI adoption.

In 2019-23 (the latest available data) Chinese imports of American capital equipment fell by more than 20% in real terms, depriving Chinese firms of the latest hardware.

But better software, powered by AI, allows them to get more out of old kit. AI sensors can detect when hardware is about to break, for instance; other tools help to reduce energy consumption. From Chinese economic data, we estimate that China’s manufacturing sector buys twice as much software as a decade ago.

America still has a big advantage: brute force. This year Amazon, Alphabet, Microsoft and Meta will invest some $300 b in new technologies, with much going on AI. Alibaba, Baidu, ByteDance and Tencent will invest about one-sixth of that. According to data from Dell’Oro Group, a firm of analysts, American spending on AI servers outstripped Chinese investment almost fourfold last year. America has ten times China’s number of data centres. 

China still faces many obstacles to adoption: data can be hard to access and combine, and many of its companies are not yet digitised. But the widespread belief that America will be faster to take advantage of the new technology is open to question.

The AI race will not be won in the high-tech clusters of Palo Alto or Hangzhou. Instead it will be won in places like Dayton and Zhengzhou, where ordinary companies and consumers harness the technology to do extraordinary things.

Even if America has the best AI models, what good are they if not enough people use them?

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