China's role in AI-led industrial revolution

AI is widely recognized as the core technology in an emerging industrial revolution that will probably transform every facet of the global economy.

- DI GUO & CHENGGANG XU

UN Trade and Development (UNCTAD) estimates—conservatively—that the global AI market will reach $5 trillion by 2033, thanks to average annual growth of about 31%. The International Monetary Fund predicts that the technology could boost global GDP by 4% over the next decade, with the United States gaining as much as 5.4%. AI's impact on science, innovation, the military, and geopolitics is already significant, reinforcing the sense that the race for AI dominance is also a race for global dominance.

In this context, the Chinese startup DeepSeek's release of a highly competitive chatbot caused a sensation in early 2025. Dubbed the “DeepSeek moment,” it immediately prompted analogies to the Soviet Union's launch of Sputnik in 1957. But do such spectacles really mean that China is closing the gap with the West?

In considering that question, it is important to bear in mind that no industrial revolution has ever emerged outside advanced democratic capitalism. This is no accident. Like its predecessors, the AI-driven industrial revolution requires robust institutions to ensure secure property rights, enforceable contracts, the ability to attract and empower talent, efficient allocation of resources, and—crucially—sustained demand. The last element is often overlooked in analyses of China’s progress in AI.