- China challenges US dominance with breakthroughs in AI models and chip manufacturing tech
- Alibaba's Qwen3.8-Max rivals OpenAI's GPT5.6-Sol in multimodal AI capabilities and efficiency
- China begins producing own deep ultraviolet lithography machines, challenging ASML's monopoly
Act 1: Trump levies tariffs on almost every economy. Act 2: Trump starts a war with Iran. Act 3: AI stocks first rally hard and then wobble on Wall Street. The common thread: China gains.
Let's zoom in on Silicon Valley first. As the presence of Artificial Intelligence has become more pronounced — both as a leverage over rivals, in Iran's case as an enemy, and also an economic impetus for financial markets — what seemed as a domination by the US biggies on Wall Street, now has serious competition from Xi's dragon warlords.
For the uininitiated, the United States always held an edge over China in terms of AI technology, specifically chatbots, microchips, and large language models while the latter mastered more physical forms like robots and humanoids. This was true till just three months ago.
Fast forward to current times, China has rattled the AI technology sphere, especially the Silicon Valley, with one breakthrough after another.
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First, China's Moonshot AI launced its Kimi K3 — an open-source, open-weight, free to use and download model, which directly challenges the likes of Anthropic's pricey Claude Fable 5. Anthropic has alleged Moonshot of distilling or harvesting output data from claude to train its AI model, despite that the Kimi 3 blow is hard on its own.
Then came another blow just last week from Alibaba's largest AI model till date — Qwen3.8-Max. The model, which uses 2.4 trillion parameters and a mixture-of-experts architecture, made headlines for having relatively lower inference pricing. It can process text, images, and video and supports up to one million tokens of context.
The company's test results show that its performanced matched up to that of OpenAI's GPT5.6-Sol, and outshone Fable 5 in terms of multimodal reasoning, visual agent and coding, office intelligence, real-world understanding, and visual perception.
Meanwhile, the United States had heavily restricted sale of critical chipmaking technology to China as the AI race intensified, through imposing blocks on shipments by ASML to the south-eastern country... so China decided to make its own.
China has reportedly begun manufacturing its own immersion deep ultraviolet (DUV) lithography machines approximately two weeks ago, striking at the heart of NYSE-listed Dutch firm ASML's near-monopoly over chipmaking tech.
Chipmaking relies on lithography machines that use precisely focused light to etch microscopic circuits onto silicon wafers. The finer the etching, the more powerful the chip.
The Chinese toolmaker, which remains unidentified, is planning to manufacture around five DUV machines this year and 20 by 2027.
Last, but very evidently not the least, CXMT's (ChangXin Memory Technologies) blockbuster debut with a 466% gain in a single day on the Shanghai's STAR Market speaks for itself.
The DRAM chip manufacturer jumped from its IPO price of 8.66 yuan to open near 49.50 yuan, and became China's most valuable company after adding $500 billion.
CXMT has expanded its market share by 8% in the last year and now has $10 billion cash to not only ramp up capacity, but also make tech leaps, accounting for the potential DUV roadblock resolution.
The week of CXMT's listing was a particularly sticky one for chip stocks worldwide, and the days after have been a see-saw, succintly summing up shifts in AI trade.
"It is a fitting irony that in a week when memory stocks remained under extreme downside pressure China's leading DRAM maker CXMT came to the market in such a dramatic fashion," said Global Head of Equity Strategy at Jefferies, Christopher Wood in his newsletter.
What is more significant, however, is that Wood's base case centres around the notion that the Chinese are best positioned to emerge as winners in AI race, most particularly in the mass consumer market.
"The hyperscalers will end up blowing a lot of money on their capex binge as AI will end up much more like the airline industry than the winner-takes-all model of the Internet era," the analyst remarked.
The Crude Hue And Cry Does Not Faze China
In the same analysis, Wood outlined that US Strategic Petroleum Reserve — the largest emergency supply of crude oil in the world — has fallen to its lowest since March 1983.
The US SPR dropped by 2.85 million barrels to 304.8 million for the week ending July 31, after America's decision to release 172 million barrels to offset global shortages following the Iran war and curb fuel prices, along with elevated export and refining demand, as per US Energy Information.
In stark contrast to this, China is resting over a plush cushion of oil reserves estimated between a range of 1.4 to 1.9 billion barrels, that it has spent decades accumulating.
To be fair, China's push for electric vehicles has massively chomped down its requirement for petroleum, according to a report done by Centre for Research on Energy and Clean Air.
The report outlined that EVs displaced an estimated 33.7 million tonnes of oil equivalent (Mtoe) in H1 2026—a 42% increase compared to 23.7 Mtoe in H1 2025
"New energy vehicle (NEV) sales, including pure electric and hybrid cars as a percentage of total passenger car sales in China, have risen from 33% in January 2024 to a record 63% in June 2026," Wood stated in the note.
If this wasn't enough, Beijing has also saved tremendously in regards to trade costs, while the rest of the world was struggling to find alternatives for their oil needs.
The country's imports bottomed in June after diving more than 40% year-on-year. While they recovered somewhat in July, as China finally felt a pinch from Iran conflict, they remain about 30% to 35% lower from 2025 levels.
At a juncture where the entire world seems to be having a knee-jerk reaction to mentions of crude oil and artificial intelligence, China is smoothly gliding through the rough terrain on judiciously crafted roller skates.
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