Chinese tech giants are speeding to catch up with their US peers in the creation of artificial intelligence (AI) chatbots. The world's second-largest economy is on course to spend $15 billion (€13.5 billion) on AI projects this year alone, a rise of nearly 50% in just two years.

Even before the arrival of large language models like the Microsoft-backed Chat GPT, some tech experts refused to bet that the West would dominate the AI race, despite the most advanced AI labs being located in the US and UK.

Kai-Fu Lee, the Taiwanese computer scientist, venture capitalist and tech executive predicted in 2018 that China would quickly surpass the US as an AI superpower, insisting the technology had already passed the innovation stage.

Lee argued that the world was now in the AI implementation stage, where China has the edge, due to years of state surveillance. Snooping on the Chinese population has allowed the accrual of huge amounts of data, which AI platforms harness to improve their learning.

But while more than half of the estimated 1 billion surveillance cameras on the planet have been deployed in China, Lee's critics argue that the AI revolution is still in its infancy and the West still holds the key.

"The big innovations in AI haven't happened yet — far from it [...] and the US currently has the advantage in that area," Pedro Domingos, professor emeritus at the Paul G. Allen School of Computer Science & Engineering at the University of Washington, told DW.

Domingos spoke of large data having "diminishing returns," in that China won't get a lot more benefit from snooping on its 1.4 billion population than the US does, with its 332 million inhabitants.

"The diversity of the data also matters. I would prefer to have the data from, say, Europe than China as it is more diverse and therefore you can learn more from it."

The US is clearly troubled by Beijing's technological ambitions, especially as the official Chinese government policy is to make the country the world's dominant AI player by 2030.

Ever-worsening relations between Washington and Beijing led the US last year to put export curbs on the most advanced memory chips, which Chinese firms need for their own advanced AI language models.

"The most cutting-edge AI systems require massive amounts of hardware — thousands of very specialized chips, running for weeks or months at a time," Paul Scharre, executive vice president and director of studies at the Center for a New American Security, told DW.

"Denying China access will shut them out of building the most advanced systems and that gap is likely to widen over time as chip technology continues to advance."

Chinese tech firms may find other ways around the ban. The domestic semiconductor market is likely to see an investment boom as local producers race to improve their own chips.

Another hole Washington may seek to close is how the US machine learning platforms are currently open source — freely available to be copied and modified.

"If you have access to the trained AI model you don't need the advanced chips. So there is a real risk that the export controls will become ineffective," Scharre, the author of the book "Four Battlegrounds: Power in the Age of Artificial Intelligence," warned.

Indeed, China's own versions of Chat GPT, created by the likes of e-commerce giant Alibaba and social media platform Baidu, were released to the world in April, just months after their US rivals.

But the country has lots of other hurdles to overcome before it rules the AI space. For one, President Xi Jinping's crackdown on the power of the tech sector over the past two years likely made Chinese executives more risk-averse.

"You've seen an explosion in rules and enforcement for the tech sector," Karman Lucero, a fellow at the Paul Tsai China Center, at Yale Law School, told DW. "Often they've been very opaque and have even preceded the new rules, which has a chilling effect on the industry."

Lucero noted how the Chinese government's obsession with censorship could be their Achilles heel as AI models won't realize their full learning potential with large amounts of missing data or when programmed to avoid many off-limit topics.

"In China, you have this wide range of [censorable] content that is always shifting. Something that could be a permissible topic today could be prohibited tomorrow, and there's no way to predict it."

The country is also short of skilled workers needed to achieve Beijing's goals. Despite an effort to build an army of AI talent, retaining top tech workers is a challenge when their skills are in demand globally.

"Talent exodus is a major hindrance to China's authoritarianism in that it drives people away. China's top AI scientists leave and it's not just that they go abroad to study and work, they prefer a more democratic way of life," Scharre said.

Despite these issues, he thinks China's AI labs are just 18 months behind the current leading research labs in the West and that the country already has the edge when it comes to deploying AI across society.

While some in the West still question whether the rollout of AI should be paused over safety concerns, Domingos says China is going full steam ahead in exploiting what he said was a "dream tool for an autocrat."

"For us in the democratic world, it's absolutely essential that the US comes out ahead. If China does, we're in a lot of trouble — politically, economically and militarily," he warned.

In the same way that US culture and technology spread globally over the past century, Domingos argued that China's domination of AI would make the rest of the world more like them, giving the example of how the West quickly followed China into strict lockdowns when COVID first hit.

"In some ways, it may be harmless — there are many great things about China — but as far as their ideology goes, it is very dangerous."