PARTING SHOT

The challenges of AI R & D and China ’ s rise require a forceful , serious response .

HE RELEASE OF THE CHINESE DEEPSEEK-R1 LARGE LANGUAGE model , with its impressive capabilities and low development cost , shocked financial markets and led to claims of a “ Sputnik moment ” in artificial intelligence . But a powerful , innovative Chinese model achieving parity with U . S . products should come as no surprise . It is the predictable result of a major U . S . and Western policy failure , for which the AI industry itself bears much of the blame .

China ’ s growing AI capabilities were well known to the AI research community , and even to the interested public . After all , Chinese AI researchers and companies have been remarkably open about their progress , publishing papers , open-sourcing their software , and speaking with U . S . researchers and journalists . A New York Times article from last July was headlined , “ China Is Closing the AI Gap with the United States .”

Two factors explain China ’ s achievement of near parity . First , China has an aggressive , coherent national policy to reach self-sufficiency and technical superiority across the entire digital technology stack , from semiconductor capital equipment and AI processors to hardware products and AI models — and in both commercial and military applications . Second , U . S . ( and EU ) government policies and industry behavior have exhibited a depressing combination of complacency , incompetence and greed .

It should be obvious that Chinese President Xi Jinping and Russian President Vladimir Putin are no friends of the West , and that AI will drive enormously consequential economic and military transformations . Given the stakes involved , maintaining AI leadership within democratic advanced economies justifies , and even demands , an enormous public-private strategic mobilization on the scale of the Manhattan Project , NATO , various energy-independence efforts , or nuclear-weapons policies . Yet the West is doing the opposite .

In the U . S ., government and academic research in AI are falling behind both China and the private sector . Owing to inadequate funding , neither government agencies nor universities can compete with the salaries and computing facilities offered by the likes of Google , Meta , OpenAI , or their Chinese counterparts . Moreover , U . S . immigration policy toward graduate students and researchers is self-defeating and nonsensical , because it forces highly talented people to leave the country at the end of their studies .

Then there is the U . S . policy on regulating Chinese access to AI-related technology . Export controls have been slow to appear , wholly inadequate , poorly staffed , easily evaded , and under-enforced . Chinese access to U . S . AI technologies through services and licensing agreements has remained nearly unregulated , even when the underlying technologies , such as Nvidia processors , are themselves subject to export controls . The U . S . announced stricter licensing rules just a week before former President Joe Biden left office .

U . S . policy ignores the fact that AI R & D must be strongly supported , used , and , where necessary , regulated throughout the private sector , the government and the military .

Finally , U . S . policy ignores the fact that AI R & D must be strongly supported , used , and , where necessary , regulated throughout the private sector , the government and the military . The U . S . still has no AI or IT equivalent of the Department of Energy , the National Institutes of Health , NASA , or the national laboratories that continued on page 58

60 | FINANCIAL ADVISOR MAGAZINE | MARCH 2025 WWW . FA-MAG . COM