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

What we want you to know:
In March, the Federal Reserve FOMC kept the benchmark interest rate in the 3.50% to 3.75% range, and the dot plot maintained a 1-rate cut path in 2026. Amid the uncertain Middle East situation, committee members slightly raised their SEP forecasts for the economy, inflation, and productivity. Financial Square also provided scenarios for oil prices, inflation expectations, and interest rate developments!

Key points of this article:

2. China’s economy is leaving behind the “5% growth” era. This isn’t a slowdown but a major upgrade in economic structure and a bold bet on AI as the national destiny.

3. Under US chip restrictions, Chinese supply chains are fighting back from the brink. The global supply chain has officially entered a “steel curtain” in the tech Cold War.

4. With open-source large models and C-end breakthrough tactics, can China’s internet giants win the AI era?

5. Physical AI: The gateway for AI to the real physical world! How to become the ultimate trump card to flip the US-China game and define the future of technology?

1. Abandonment of the “5% GDP growth” target! From total stimulus to structural reform

Starting with the government work report from China’s Two Sessions in early March, we observe changes from top to bottom. The report highlights two key points: First, China’s current economic policy focus is shifting from previous total targets to a more refined structural transformation. The most obvious change is that this year’s GDP growth target has been adjusted from the original 5% to a range of 4.5% to 5%, marking the first time since 2023 that the 5% goal has been abandoned.

This adjustment indicates a shift in focus from “quantity” to “quality” of economic growth. This principle is also reflected in fiscal and monetary policies. On the fiscal side, China is slowing the growth of local debt, with the central government taking on more deficits. Spending is increasingly focused on people’s livelihoods and technology, with a reduced share for infrastructure investment. On the monetary side, the policy remains accommodative, but instead of traditional tools like reserve ratio cuts and interest rate reductions, more emphasis is placed on structural monetary tools such as government bond buybacks to achieve precise liquidity control.

The second key point is undoubtedly technology,

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                            Click questions to let MM AI answer you
                        

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                                            How does China’s shift away from the "5%" growth target reflect its economic policy focus?
                                        
                                        

                                            💡China’s economic policy focus is shifting from total targets to structural transformation, with GDP growth adjusted to 4.5% ~ 5%. Fiscal policy slows local debt growth, with the central government bearing more deficits, and spending emphasizes people’s livelihoods and technology. Monetary policy remains accommodative, focusing more on structural tools like government bond trading to achieve precise liquidity control.
                                        

                                    

                                
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                                            How does the development of new quality productivity influence economic structural transformation?
                                        
                                        

                                            💡New quality productivity, synonymous with high-tech and new driving forces, is key to China’s economic structural transformation. Officially, the emphasis on overall GDP growth is downplayed, with a focus on increasing the proportion of high-tech industries and raising the digital economy’s share of GDP to 12.5%. Through industrial upgrades, China aims to reshape its economy to better compete in the US-China tech race.
                                        

                                    

                                
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                                            How does China’s supply chain fight back amid US chip restrictions?
                                        
                                        

                                            💡In response to US chip restrictions, China’s supply chain is innovating system architecture to compensate for limited chip computing power. For example, Huawei integrates numerous chips into data center cabinets, using high-speed communication technology to shift the AI battlefield toward system integration and multi-chip connectivity. This provides valuable solutions for domestic CSP manufacturers. Additionally, in other non-chip supply chain areas, China’s cost advantages and supply chain clusters are fully leveraged.
                                        

                                    

                                
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                                            How does China’s ahead-of-the-curve power infrastructure impact AI development?
                                        
                                        

                                            💡China’s advanced power infrastructure, such as the "East Data West Computing" project, uses western green energy to support AI data centers. However, despite the significant power advantage, actual utilization is limited by chip supply bottlenecks, making it difficult to fully leverage the power advantage. US data centers still lead in power load growth.
                                        

                                    

                                
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                                            How are China’s internet giants breaking through the AI market via C-end applications?
                                        
                                        

                                            💡Chinese internet giants like Alibaba and ByteDance leverage cost-effective open-source models and large user bases to break into the C-end market. For example, Alibaba’s QWEN AI, through promotional activities, deeply integrates into software ecosystems, enabling hundreds of millions of users to experience AI shopping, moving AI from chatbots to agents and real consumer scenarios.
                                        

                                    

                                
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                                            How can Physical AI become the key to China reversing the US-China tech game?
                                        
                                        

                                            💡Physical AI is crucial for China to turn the tide in the US-China tech rivalry. China is faster in industrialization and regulation implementation. For instance, L3 autonomous vehicles are approved for road testing, and Chinese firms lead US giants in humanoid robot shipments, thanks to a complete manufacturing industry, advanced regulation, and vast data resources, enabling China to catch up.
                                        

                                    

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

                                            💡In the US-China tech Cold War, investors should focus on data center computing power (semiconductors), power infrastructure (grids, energy storage), and spillover supply chains (memory, cooling, other components). These areas will remain at the forefront of US-China competition. The US faces fewer hurdles overcoming power bottlenecks, while China needs continuous innovation in models, C-end business models, and advantages in robotics and autonomous driving.
                                        

                                    

                                
                                                

                
                
                

                

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