China is trying to commoditize the complement

China is trying to win by commoditizing the complement. The strategy is working, though not without friction. This is a structural 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.

The commodity play is working, but it is not frictionless. China faces real constraints, and they shape how far the strategy can go.

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. By MacroPolo’s Global AI Talent Tracker, China is the single largest source of the world’s top-tier AI researchers, yet a large share of them end up doing that work in the United States. Tightening political control over universities and private firms can speed up execution on defined goals, but it makes the open-ended, high-risk research that produces real breakthroughs harder to sustain.

Predictability matters for long-term innovation, and the last few years dented it. The abrupt suspension of Ant Group’s record $34 billion IPO in November 2020, the 2021 crackdowns that erased the for-profit tutoring sector overnight and froze new game approvals for months, and Didi’s forced retreat from US markets after its 2021 listing all sent the same signal: any company can become a target without warning. Foreign firms recalibrated their exposure and some domestic founders turned cautious. Centralized coordination buys speed, but it also shrinks the appetite for bets that do not match current state 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. They set its ceiling. China can drive the price of model access toward zero faster than anyone, but the open-ended research and the institutional trust that turn a cheap commodity into new industries are much harder to subsidize into existence.

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.