Chinese leaders have repeatedly shown patterns to think ahead over the last 5 decades. Think 1980's industrialization. Think the 2010's manufacturing explosion. We believe China is in the middle of a strategically decoupling process from US. And this is irreversible. Chinese policy makers are fully aware of the AI potential in next few years. They also know US is ahead in the race for now. But China does not want this to be used as a leverage against them by US. Hence China is pursuing self-reliance in AI at every level of technology. While China’s government has long identified AI capabilities as a critical goal, it employs different strategies to aid each layer. The heaviest state support is reserved for the capital-intensive semiconductor sector. Indigenization efforts for software frameworks are entrusted to Big Tech companies. Higher layers, i.e., AI models and applications, benefit from an enabling environment but receive less direct state support. The real strength of Chinese AI space is it's open source nature. China also does not follow the shock and awe policy of announcing large AI capex and data centers. They like the “build it and they will come” way. Chinese decoupling from US in AI is strategic in nature. Both countries are aggressively building mutually exclusive AI ecosystems, as a long-term strategic effort rather than a short-term tactical move. China aims to eliminate all US-origin dependencies in its AI and semiconductor supply chain, building a fully indigenous ecosystem that cannot be disrupted in a crisis. In pursuit of this, Chinese policymakers increasingly prioritize security and strategic resilience over AI performance, accepting near-term efficiency losses as the price of long-term autonomy. All of above leads us to our hypothesis that Chinese long held ambition of unifying Taiwan with mainland is nearing action point. In the 24th Nov call with Trump, Xi focussed on Taiwan while Trump focussed on trade & agriculture. Xi reinforced the point that some kind of compromise over Taiwan is a structural component of creating and maintaining US–China strategic equilibrium, rather than merely a regional issue. He did this on the call by stressing China’s “core interests” and the historical legitimacy of China’s claim. We believe one way or the other, China might look to annex Taiwan by 2027. Either it will come as a part of a large deal with US with Taiwan against Trade & Tech, or plain military action. China is completely prepared for both of the above options seeing the rapid decoupling from US in recent times, specially in the AI field. They don’t want any leverage against them to be there when they act in 2027.
