In the battle for AI supremacy, China is only six months behind the U.S - but that means they're winning, says former Google CEO

By Jules Rimmer

China's cheaper and open weight AI models leave the more expensive, closed U.S. ones vulnerable to competition

China may be winning the AI race from behind.

As the former chief executive officer of Google, Eric Schmidt is well-positioned to assess the state of play between the U.S. and China in the battle for AI superpower status. The good news? Right now, he reckons China is about six months behind. The bad news? If that's true, China is already winning because their models are either cheaper or free, and the vast majority of the world will adopt those.

This troubling narrative was outlined by Schmidt during an interview on the podcast released Wednesday by the chief executive of Norway's $2 trillion-dollar sovereign wealth fund, Nicolai Tangen. Schmidt led Google (GOOG) between 2001 and 2011, is now the chair and chief executive of an aerospace manufacturer called Relativity Space while also still investing in tech personally. He still holds nearly 16% of Alphabet, according to FactSet, and Bloomberg reported he owns 1% of Anthropic,

Eric Schmidt was CEO of Google from 2001-2011

Schmidt's concern is that because China's models are open weight, they will clearly be more appealing to consumers in less-wealthy countries who cannot afford the more expensive, closed Western models.

His hunch is borne out by data: the tracker OpenRouter says the five most popular models this model are Chinese.

Schmidt points out that the rapid advances made by the Chinese have been made probably because "they have used chips that they were not supposed to have" that were "pilfered or smuggled" into China. At the same time, China also exploited the distillation technique of posing a Western model questions and then training their own models on the answers.

Worryingly for European governments, though, Schmidt is scathing on their prospects and how far behind the U.S. and China they have fallen. Schmidt cites a risk-averse culture, high energy costs, low university funding and above all, over-regulation. He tells Tangen that Europeans are change-resistant, and "they regulate before they innovate."

Comparing the approach of Europeans to Americans to the evolution of AI, he notes that when Brussels designed its strategy five years ago, it was prefaced by a list of things that could not be done. The American tactic was "run as fast as you can, align it with human values, and if bad things happen, fix them immediately."

As one might expect from someone who owns a personal stake in Anthropic worth maybe $20 billion, Schmidt is an AI bull. During the conversation he makes an immense effort to convince Tangen of the size, scope and speed of the AI revolution which he thinks is beyond the capacity of most people to fathom. "It defies logic. It's like the scale of the universe, it's too big for humans to understand."

On the boom or bubble question, Schmidt is emphatic: "this is not a bubble." He cites the revenue growth of Anthropic as evidence: "When I was CEO at Google, we set the revenue growth record. They smashed it more than twice the speed we did. That's real growth. It's not fake. It's real money with real money with real customers who are paying for something useful."

Citing a draft prospectus, the Wall Street Journal reported Anthropic generated $16.3 billion of revenue, though also a net loss of more than $80 billion.

He also evangelizes about the benefits it will bring to the study of biology, mathematics and physics. He quotes the current chairman and co-founder of Google DeepMind, Demis Hassabis, who reckons in the next few decades we can cure all human disease.

On a company level, he thinks those chief executives who adopt and harness AI fastest will be the big winners. The emphasis is on the speed of the take-up because the industry is moving so fast, development cycles are being compressed all the time and some models are now obsolete within six months. His advice to chief executives is to flatten organizations, eliminate "glue people" who perform routine tasks, and focus on inventors, salespeople and leaders.

-Jules Rimmer

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-21-26 0612ET