Hi, this is Evelyn, writing to you from Beijing. Welcome to the latest edition of The China Connection — a snapshot of what I'm seeing and hearing from local businesses.
As Chinese startups build new artificial intelligence models and more American startups use them, they're raising the stakes for U.S.-China relations.
President Xi Jinping's AI speech on July 17 and the coinciding release of Claude Fable 5 rival Kimi K3 were just a start. The flurry of U.S. government pushback on Chinese open-source models ignited calls against " premature restrictions " in an open letter Friday from Nvidia's Jensen Huang and more than 20 other tech companies.
"To me, the release of Kimi K3 has kicked off a hornet's debate in Washington about what to do about Chinese open-weight models," said Ryan Fedasiuk, fellow at the American Enterprise Institute.
The debate will soon be tested at a high level.
In remarks late last week about a U.S. data center policy , U.S. President Donald Trump said he plans to discuss AI with Xi during a visit to the U.S. in late September. China's foreign ministry responded by saying Beijing was ready to work with the U.S. on AI .
Whether the two countries end up being more collaborative — or adversarial — on the technology will be "very consequential," said Lex Zhao, a Chinese-born venture capitalist who oversees $150 million in assets as a Boston-based managing partner at One Way Ventures.
"The reality is that a lot of American startups use Chinese AI models," he said. "A lot of companies we invest in build on top of these models."
Zhao believes the U.S. and China each hold "a lot of leverage" over the other, limiting what actions they will take on AI.
Such commercial interdependence is turning a technology challenge for Washington into a diplomatic one.
This month, China not only hosted its World AI Conference in Shanghai but also the APEC Digital Weeks in Chengdu , where nearly two dozen senior tech officials gathered — including from the U.S.
George Chen, partner and chair of digital practice at consultancy The Asia Group, attended both events.
"Now Beijing also views AI as a new kind of diplomacy to grab more allies and partners," he said, adding that the coming Trump-Xi summit in Washington, D.C., in September will be the first time the two leaders can address AI diplomacy matters.
China's tech advances have come despite four years of U.S. restrictions on access to advanced semiconductors for training AI. Excitement over powerful new models is still constrained by computing power.
Earlier this month, AI consultant Shu Weibing said he visited Z.ai 's offices, only to find a three-month waitlist for companies wanting to use the startup's most advanced GLM 5.2 coding tools released in mid-June. Z.ai did not respond to a request for comment.
And just a few days after Moonshot launched Kimi K3, the startup said it was pausing new subscriptions due to computing power limits.
China is pouring resources into domestic computing capabilities. Z.ai is ramping up a giant 1-gigawatt data center, a source familiar with the matter confirmed to CNBC.
But the pace of Chinese AI releases, even as of late June, convinced slightly more Americans that China is more advanced than the U.S. on developing AI, according to a Pew Research survey. A separate Pew study in early July found that roughly half of Americans disagreed with both Democratic and Republican policies related to AI.
U.S.-based Hugging Face even said it had to use Z.ai's GLM 5.2 to address a cyberattack from a rogue OpenAI model.
"The incident clearly underscores why open source is so necessary for American enterprise and it would be foolish to close it off," said Fedasiuk, noting "I think it's possible to stake out a middle ground here."
Amid U.S. companies' claims that Chinese developers stole AI capabilities, the most advanced U.S. open-source model to date, from startup Thinking Machines Lab, disclosed that it used DeepSeek and Kimi in the development process.
Other countries are watching closely. APEC representatives gathered in Chengdu published a statement Thursday in support of open-source AI models "that employ strong security assurance ."
It's not clear whether policy, even if discussed by the leaders of the world's two largest economies in two months' time, can secure an edge in the fast-moving AI race.
The best practice among businesses is to use systems that give them the option to switch between different models, rather than just relying on one, said One Way's Zhao.
As Chinese models improve and spread, it may become harder for companies in the U.S. and elsewhere not to build on them.
Geely to make EVs at Ford plant in Spain under new joint venture
The joint venture is expected to include a new electric crossover for Ford , in "addition to a new member of the Bronco family, plus two electric Geely SUVs, with production starting in 2028," the companies said. In China, car sales are headed for their worst year since 2021 as growth slows.
Industrial profit growth slows again in June
China's industrial profits rose by 15.1% in June from a year earlier, down from May's 21.1% gain. Investors will now turn to the Communist Party's Politburo meeting, traditionally held in late July, where economists anticipate stronger easing language after the second-quarter slowdown.
Memory chipmaker CXMT skyrockets 470% in Shanghai debut
The Hefei-based company raised 57.92 billion yuan ($8.6 billion) after pricing its IPO at 8.66 yuan per share. Shares surged to 49 yuan apiece on open. CXMT held a 7.67% share of the global DRAM market in 2025, based on fourth-quarter sales figures shared in its IPO prospectus.
July 30: China Politburo policy meeting expected
Aug. 3: RatingDog China General Manufacturing PMI
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