China is trying to commoditize the complement

China is trying to win by commoditizing the complement and I believe they are close to succeeding. This is a strategic challenge the West should take seriously instead of dismissing.

For the last two decades, the West exported cognition because it owned the platforms, the cloud, the software distribution, and the talent concentration. If the cognitive engine becomes cheap, portable, and good enough, that asymmetry weakens. A small country can buy or download the same cognitive machinery, then apply it to its own bureaucracy, its own companies, its own language, its own domain problems.

The West has dominated the thinking and services world. Software, finance, media, research, management layers, and the export of expertise. The US is the clearest example. In 2024, US services exports were about 1.1 trillion dollars, the highest on record. The US and the West sell thinking at scale. AI threatens to flatten that advantage because AI turns thinking into infrastructure.

China dominates the atoms world. Industrial capacity, manufacturing throughput, physical supply chains, cost curves. In 2023 China produced about 28 percent of global manufacturing value added.

If you can make the layer next to you cheap and abundant, you drain its pricing power and force value to move somewhere else. In AI, the complement is model access. For a lot of Western companies, the business is still basically gated intelligence sold as an API. China has every incentive to make that layer feel like electricity: available everywhere, cheap, hard to monopolize.

Open weight releases are part of that play: DeepSeek, Qwen, Kimi, and MiniMax are only a few of the Chinese open-source models. Once strong models are common, model access stops being a moat. It becomes a commodity input.

A huge fraction of what we call services is legible work: reading, writing, coding, summarizing, translating, drafting, answering, generating variations, searching a space of options. That layer is now replicable and it is getting local. Apple is publishing technical reports about on-device foundation models, including aggressive quantization aimed at making serious inference run on consumer hardware. When strong models run on a laptop, countries stop importing thinking as a service. They import weights, or they distill, fine-tune, and deploy inside their own borders.

That said, China is not without constraints, and from where I sit they matter.

Capital controls limit how freely Chinese companies can operate globally. The state can redirect investment at a scale nobody else can match, but centralized allocation tends to overshoot. Solar panel overcapacity, steel oversupply, and the EV price war all follow the same pattern: massive subsidized buildout that ends up compressing margins for everyone, including the Chinese firms themselves.

Top talent still flows toward open research environments. Many of the best Chinese researchers publish in Western conferences and a significant number stay abroad. The tightening of political control over universities and private companies can accelerate execution on defined goals, but it makes it harder to sustain the open-ended, high-risk research that produces unexpected breakthroughs rather than incremental gains.

Predictability matters for long-term innovation. Foreign companies are recalibrating their exposure. Some domestic entrepreneurs are more cautious than they were a decade ago. Centralized coordination gives speed, but it can also reduce the appetite for bets that do not align with current priorities.

The West still has one advantage that is hard to replicate: it is where most of the world’s ambitious talent wants to live, work, and build. It is a compound effect of open institutions, freedom of movement, and decades of accumulated trust. As long as that holds, the West keeps attracting the talent and the capital that turn ideas into new industries.

None of these constraints cancel out the commodity play. But they mean the race is closer than either side assumes, and the outcome is far from settled.

China stays strong in atoms because it already has the scale advantage. The West still leads in areas that require deep institutions and long accumulated competence, frontier research and high trust services in particular. But AI compresses the services premium by making a large portion of cognition cheap and replicable. That is why open models matter. They attack the margin structure of the thinking economy.

If you sell intelligence, this is bad news. If you own distribution, hardware, data, or a workflow people cannot easily leave, you survive. If you own atoms and you get thinking for free, you get a scary combination, because the services premium that sustained Western economic leadership for decades can be undercut by a player with industrial dominance and access to the same cognitive tools.