US-China AI race could face financial setbacks, mass layoffs over next three years: Report

The report highlighted, the global artificial intelligence (AI) race is increasingly becoming a contest between China's state-led approach and the US market-driven model.

However, the outcome remains "uncertain," as "China shows advantages in government support and national coordination while the US hyperscalers plan to invest vastly larger sums and have unimpeded access to cutting-edge technology."

The competition between the two countries can be assessed across five key layers of the AI technology ecosystem, including power, chips, infrastructure, models and applications.

S&P Global sees, "China as ahead of the U.S. in two and behind in two," with one layer where both face major challenges.

As per S&P Global, "China holds a clear and widening lead in power availability and has an advantage in national coordination and long-term planning shown by such initiatives as East Data West Compute."

However, in semiconductor manufacturing, US technology restrictions remain China's biggest challenge, although these measures are also accelerating domestic innovation. It further noted, US technology bans are pushing China to develop "complete end-to-end domestic chip supply chains," reducing its dependence on foreign technologies.

At the same time, both countries face different challenges in expanding data centre capacity.

While the US data centre expansion is constrained by market expectations for returns on investment, China faces the risk of excessive infrastructure development driven by aggressive investment by local governments.

Regarding AI models, S&P Global noted, "It's unclear if China's open-source or the U.S.'s proprietary approach will "win". Ultimately, they will most likely coexist as providers identify the right use cases at the right prices."

According to the report, a potential "AI bubble burst" and "mass layoffs" are the most likely risks over the next three years, along with insufficient funding, wasted investments and AI attacks on humans.

As US AI investments are largely market-funded, any losses could affect investors, technology companies, banks and financial markets globally, it noted.

Notably, "Asia-Pacific would also face growth impacts from an AI slow-down or bubble burst, not just through the hardware supply chains, but also through the financial markets."

Export-driven economies such as South Korea and Taiwan, along with data-centre investment hubs like Malaysia and Australia, could face greater risks.

Overall, "China holds advantages in government support, rapid productization, and massive domestic markets," it said, adding, if China succeeds, "developed and developing countries alike may find it even harder to compete." (ANI)