Facing semiconductor shortages, China is pursuing a unique AI development path. Instead of competing directly on compute power, its strategy leverages national strengths in vast data sets, a large talent pool, and significant power infrastructure to drive AI progress and a medium-term localization strategy.

Contrary to the assumption that China's elite talent programs are purely for STEM, they also recruit top humanities students. These individuals are later employed by major AI companies like DeepSeq to help models better understand human intelligence, literature, and history, acknowledging that AI development requires more than just technical skills.

China's harsh, deflationary economic environment and intense domestic competition, while causing many companies to fail, effectively hones a select few into highly resilient and efficient champions. These survivors are now prepared for successful global expansion.

Counterintuitively, China leads in open-source AI models as a deliberate strategy. This approach allows them to attract global developer talent to accelerate their progress. It also serves to commoditize software, which complements their national strength in hardware manufacturing, a classic competitive tactic.

While designed to reward merit, China's Gaokao system favors the wealthy. Families in elite districts or those who can afford expensive private tutoring have a significant advantage, perpetuating inequality rather than providing a level playing field for all students.

China is allowing universities to purchase Nvidia's H200 chips while restricting commercial firms to "special circumstances." This suggests a strategy to foster domestic AI research and talent development without becoming overly reliant on foreign tech for immediate commercial applications.

China's greatest asset in the AI race is its human capital. It produces the world's largest number of STEM graduates, creating a deep talent pool of engineers and scientists that makes it a formidable, long-term competitor to the United States.

Contrary to the Western perception of a monolithic state-run system, China fosters intense competition among its provinces. Provincial leaders are incentivized to outperform each other, leading to massive, parallel innovation in industries like EVs and solar, creating a brutally efficient ecosystem.

China is transitioning from its role as the world's factory floor to its primary source of highly educated talent. With the most numerous tertiary-educated population, China is now a key input for human capital in global supply chains, attracting companies for complex R&D and drug discovery trials, not just low-cost manufacturing.