A month ago, the CEO of the most valuable company in the world boarded Air Force One to Alaska as a last-minute addition for President Trump’s delegation to Beijing. Jensen Huang came to sell Nvidia’s H200 chips, just cleared for export from Washington. But Beijing said no.
It is pushing Chinese firms to use Huawei and other domestic sources instead. Nvidia’s market share in China fell from 95% to essentially zero last year.
The summit was framed as a negotiation over what China would buy from America: airplanes, soybeans, potato chips. The Huang episode reveals Beijing’s current priority: technological independence, then supremacy. Trade, markets and profit be damned.
As China catches up with and even overtakes the West in more technology, the direction of technology transfer is changing. Early signs are already visible.
- Over a third of new molecules licensed by Western pharmaceutical companies last year originated in China.
- T1 Energy, which calls itself the leading solar manufacturer in the US, was built by buying China’s Trina Solar plant and operates under licensed Chinese IP.
- Ford is licensing and learning Chinese battery technology from CATL to build its Michigan plant.
- And Porsche just opened, in Shanghai, its first integrated research and development center outside of Germany.
For decades, the global economic order operated under a comfortable paradigm: The West would invent and China would manufacture. This is now being reversed. Over the next decade, Western companies will increasingly need to license and learn Chinese technology to remain competitive.
The scale of the shift is staggering. Just last month, the Australian Strategic Policy Institute found that China now leads 69 of 74 top technologies. China’s universities now hold eight or nine of the top 10 places for highly cited scientific research, depending on the ranking.
The US still dominates in aerospace and semiconductor design, but China already leads in electric vehicles, batteries, drones and robotics and industrial automation. China recently reached parity with the EU in pharmaceuticals, and in AI, the performance gap between the best US and Chinese AI models has fell to 2.7%.
How did this happen? Two factors are critical to R&D: the quantity of quality talent and the speed of iteration and learning. The latter depends on the speed of experimentation and prototyping. In the field of atoms, this relies on the speed of an industrial supply chain.
Nowadays, it is 2-5 times faster to replicate in China compared to the US. This was already true for consumer electronics a decade ago, but is now increasingly true in deep technology, from new battery chemistry to robotics to new medicines. Now China has just as many talented engineers and scientists, although they are 3-7 times cheaper. So for the same R&D budget, China is > 10 times more productive than the US.
This is no coincidence. Beijing’s openly stated priority is self-sufficiency in technology and what Xi Jinping calls the “Real Economy” (安全线经), as opposed to what he believes to be the United States’ “Financial Economy” (金色线经). Xi’s warning to Chinait could also be his criticism of the US: “China’s financial sector must maintain its proper role to serve the real economy and promote high-quality development; it must never shift from the real to the virtual/fictitious.”
Therefore STEM became the north star in China. 34% of Chinese college students major in engineeringversus just 7% in the US. China has graduated almost 5 times as many college engineers and scientists as the US and 2x more PhDs in STEM. China also has > 10x more technical and professional graduates – technicians, machinists, electricians essential not only for manufacturing but also for technology development itself. The end result is one industrial workforce of 70 millionthe largest in the world.
However, China’s approach comes at a heavy cost. Incentives from both Beijing and local governments to prioritize production over profit have led to an economy in dire straits. Their push for technological independence by definition creates redundancy, or overcapacity, leading to price wars and unprofitable firms.
Corporate margins often evaporated in the high-level competition between each province’s technology champions. Venture-backed startup formation plummets by ~99% from 2018 to 2024. Recently, China has also faced the specter of deflation.
It is this friction – the causal combination of China’s near technological parity and its economic weakness – that is creating an arbitrage opportunity that businesses will find impossible to ignore.
China’s technology leaders, facing battered domestic markets, are desperate to sell their innovations in the West, where margins are healthy. But as China moves forward, its innovators face increasingly protectionist Western policies, as well as increased export controls from Beijing itself, and many will not be allowed to enter our markets alone.
Thus, firms will emerge to bridge the geopolitical divide, taking on the role of local partner to bring Chinese technology to Western markets through structures that proactively satisfy both governments. And Western companies are likely to increasingly collaborate with Chinese innovators not only in manufacturing but in R&D itself, especially in non-defense categories such as medicine, clean energy and advanced materials.
If the West wants to maintain our past leadership, we know what we need to work on: more engineers, more scientists, faster industrial capacity. In parallel, those who overcome reflexive competitive fear and harness a world with far more innovative capacity will see transformative benefits. After all, would it be so terrible if China invented five more cancer cures than we did?
Tony Pan, PhD, is a physicist and technology founder/CEO who has raised over $100 million building deep-tech companies in clean energy and advanced materials, a tenured fellow at the Council on Foreign Relations, and a contributor to the World Economic Forum. Born and raised in Taiwan, he often travels to China for work and family.
