Has China taken the lead on AI?
The Chinese economy is facing headwinds. There is weakness in consumer spending, its property market is still in a slump, and there’s weakness in business investment.
Speaking on the latest episode of MoneyWeek Talks, Dale Nicholls, manager of Fidelity’s China special situations fund says while there may be negative things to say about the country’s economy, there are also bright spots to look out for,
“In terms of the domestic business, things are relatively muted. But, as always there’s pockets of strength in certain areas.”
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He pointed to some constituents of his fund which are producing good numbers, like high-end mall operators and some restaurant chains, and added that while there is a “relatively weak consumption market”, the firms that have the right business model are taking market share.
Artificial Intelligence (AI) is also an exciting area for the region. “The companies that are involved particularly with anything AI-related, there’s somewhat of a tech boom. Business is strong for the companies that are involved with that,” he said.
AI is a major growth area for the global economy, and the controversies around it are mirrored in China too. For example, the concerns around the extent of capital expenditure and the return on investment.
Nicholls said: “The big technology companies – the Alibabas, the Tencents of the world – the market’s reacted badly to them increasing capex, but this feels to me a little bit overdone.”
The investors who are scorning increased capex are not asking the right questions, Nicholls claimed, namely whether the firms have a reputation for bringing returns on their investment.
“A lot of these companies have pretty good track records of generating good returns, and the feedback we get from them on what the return they’re getting on their spend is pretty good,” he said.
Nicholls was confident that parts of the AI market in China still provide good value. “Some of those big tech names I would put in that category. They’ve been sold off but if you think about the businesses as the sum of its parts – things like cloud – you’re actually seeing accelerating growth now, so it’s definitely seeing things pick up.”
Is China winning the AI race?
Although the models produced by US-based firms are currently the global leaders in AI, Chinese models are giving them a run for their money.
“[China] has some of the most competitive LLMs (large language models) out there, but the market doesn’t seem to be giving them a lot of value for that. Particularly if you look at the standalone LLM companies listed in China, they’ve done quite well.”
Chinese models have already disrupted the Western AI market multiple times. The release of DeepSeek’s R1 model in January 2025 brought with it a lot of panic in the West as investors reacted to Chinese AI challenging Western models.
A similar panic was caused when Kimi K3, another Chinese AI model, caused panic was released in July.
“Kimi K3 is interesting because it’s quite different in terms of size relative to others, but the performance is right up there with global frontier models. It’s much bigger, and they’re pricing it that way as well. So not quite the levels of US models in terms of their pricing, but obviously much higher than the other open weight models that the Chinese have been offering.
“So I think it’s another indication of the innovation that’s happening on the ground.”
For more, watch the full episode of MoneyWeek Talks with Dale Nicholls in conversation with MoneyWeek’s Cris Sholto Heaton on YouTube – or listen on any podcast platform.
About the podcast
MoneyWeek Talks is a podcast that helps you unlock the secrets to financial success. Editors Kalpana Fitzpatrick, Andrew Van Sickle and Cris Sholto Heaton are joined by influential guests – from CEOs and entrepreneurs to economists and fund managers – to share their top tips on managing money, investing wisely and building wealth.
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