[Market Brief] The New Cold War in Technology: In-Depth Report on US-China AI Competitiveness

What we want you to know is:
In March, the US Federal Reserve’s FOMC kept the target range for the benchmark interest rate at 3.50% ~ 3.75%, and the rate-dot plot also maintained a 1-basis-point (1-pp) rate-cut path in 2026. Against the backdrop of still-unclear conditions in the Middle East, the committee’s SEP projections were modestly raised for growth, inflation, and productivity, while M Square provided scenarios for oil prices, inflation expectations, and the interest-rate outlook!

Key points of this article:

2. China has moved on from the “keep above 5%” era. This isn’t a slowdown in growth; it’s a high-stakes bet on an economic structural upgrade—doubling down on the destiny of AI.

3. Under the US “chip lock by the throat,” China’s supply chain is mounting an all-out counterattack. In the tech Cold War, the global supply chain has officially lowered the “Iron Curtain.”

4. With open-source large models plus a C-end breakout strategy, can China’s internet software giants win in the AI era?

5. Physical AI: the gateway to the real physical world! How can it become the final ace that flips the Sino-US tech game and defines the future of technology?

I. Giving up the “keep above 5%” growth target! A shift from stimulus based on totals to a path of structural reform

We start with the government work report from the Two Sessions in early March, and observe China’s changes from the top down. In the report, we see two focal points. First, the policy focus of China’s economy is accelerating its shift from past total-amount targets toward a more refined structural transformation. The most obvious adjustment is that the GDP growth target for this round has been adjusted from the previous 5% to a range of 4.5% ~ 5%—marking the first time since 2023 that China has abandoned the 5% target.

This kind of adjustment shows a change in the goal of prioritizing the “quality” of economic growth over the “quantity.” This principle is also reflected in fiscal and monetary policy. On the fiscal side, China structurally slows the growth rate of local government debt and has the central government take on more of the deficit. In terms of expenditure structure, it also places greater emphasis on people’s livelihoods and technology, while reducing the proportion of investment in infrastructure. On the monetary side, it continues a relatively accommodative stance, but compared with traditional quantity-based tools such as RRR cuts and rate cuts, it places more emphasis on structural monetary policy tools—such as open-market operations involving government bond purchases and sales—to achieve precise liquidity management.

The second focal point is undoubtedly technology,

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                                            China abandons the “keep above 5%” target—how does the focus of its economic policy shift?
                                        
                                        

                                            💡China’s policy focus shifts from total-amount targets to structural transformation, with the GDP growth target adjusted to 4.5% ~ 5%. The fiscal policy slows the growth rate of local debt; the central government takes on more of the deficit, and the spending side emphasizes people’s livelihoods and technology. Monetary policy maintains an accommodative stance and focuses more on structural tools such as government bond trading to achieve precise liquidity management.
                                        

                                    

                                
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                                            How does the development of new quality productive forces affect China’s structural economic transition?
                                        
                                        

                                            💡New quality productive forces, as a synonym for high technology and new drivers, are key to China’s structural economic transition. The official stance downplays the overall GDP growth rate and calls for raising the share of technology structurally, increasing the share of the digital economy in GDP to 12.5%. Through industrial upgrading, the economy is reshaped from the ground up to respond to the China-US technological competition.
                                        

                                    

                                
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                                            In response to the US “chip lock,” how can China’s supply chain fight back in an all-out effort?
                                        
                                        

                                            💡In the face of the US “chip lock,” China’s supply chain is making up for shortages in single-chip computing power through innovative system engineering architectures. Taking Huawei as an example, data-center racks are packed with large numbers of chips, and through high-speed interconnection using communications technology, the AI battlefield is shifted toward system integration and multi-chip connectivity—providing invaluable solutions for local CSP manufacturers. In addition, in other segments of the non-chip supply chain, the cost and supply-chain cluster advantages of China as the world’s factory are being fully leveraged.
                                        

                                    

                                
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                                            How does China’s forward-looking buildout in power infrastructure affect AI development?
                                        
                                        

                                            💡China’s forward-looking buildout in power infrastructure, such as the “East Data, West Computing” project, leverages green energy generation resources in the western regions to provide strong foundational support for AI compute centers. However, despite the huge power advantage, actual utilization capacity remains constrained by chip supply bottlenecks, making it difficult for the power advantage to be fully realized in the near term. In the US, data-center power load growth still leads that of China.
                                        

                                    

                                
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                                            How can China’s internet software giants break through in the AI market through C-end applications?
                                        
                                        

                                            💡China’s internet software giants—such as Alibaba and ByteDance—break through in C-end applications by relying on open-source models with high cost-effectiveness and their massive internet user base. For example, Alibaba’s QWEN AI integrates the software ecosystem deeply through promotional activities, letting hundreds of millions of users experience AI shopping and moving AI from Chatbot toward Agents and real consumption scenarios.
                                        

                                    

                                
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                                            How does Physical AI become the key for China to flip the Sino-US tech game?
                                        
                                        

                                            💡Physical AI becomes the key for China to flip the Sino-US tech game. China is faster in terms of industrialization and regulatory rollout. For instance, L3-level autonomous driving vehicles have been approved to start road testing, and China has adopted a more aggressive stance toward autonomous driving. In the field of humanoid robots, Chinese manufacturers are far ahead of US giants in shipment market share. By leveraging a complete manufacturing industry, forward-looking regulation, and large volumes of data, China is catching up to the US.
                                        

                                    

                                
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                                            Under the Sino-US tech Cold War, what key investment directions should investors focus on?
                                        
                                        

                                            💡In the Sino-US tech Cold War, investors should focus on data-center compute power (semiconductors), electricity (power grids, energy storage), and their spillover supply chains (memory, cooling, and other components). These areas will remain in the storm zone of the Sino-US contest over the long term. The US faces fewer difficulties in overcoming power bottlenecks, while China needs to continuously drive model innovation, C-end business models, and capitalize on advantages in robots and autonomous driving.
                                        

                                    

                                
                                                

                
                
                

                

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