Analysis of China's AI open source strategy: Commoditization and hardware strengths will undermine the advantages of the US technology industry

In the increasingly fierce AI competition, China is displaying a new strategic posture: "weakening the advantages of US tech companies by massively releasing open-source AI models" and redefining the global AI industry's value chain with hardware at its core. This action, seemingly in the name of "open source," may hide broader national interests and an industrial restructuring blueprint. Balaji, former Coinbase CTO, pointed out that recently there are signs China is massively releasing various AI models, covering areas from computer vision to robot control and image generation. He is concerned that the purpose of these open-source models is not just to promote technical exchange, but to "squeeze out the profits of AI software," because China's primary profit sources are AI-driven hardware devices like smart home systems, self-driving cars, drones, and robots. This approach is similar to China's previous strategy against US manufacturing: "copy, optimize, scale up, and then seize the market at low prices." Balaji believes China's aggressive promotion of AI model open-sourcing can be understood through several points, including market shock effects, hardware export advantages, scale suppression strategies, national honor and transformation, nationwide participatory open-source, and national-level endorsement. Balaji emphasizes that if China successfully "free-izes" AI software, it will force Western closed-source AI model development companies to face severe challenges, especially with unsustainable high R&D costs. At that point, stable profit creation will shift to AI hardware and integrated solutions, which is precisely China's strength. China's core strategy is to "disrupt existing business models with open-source models while selling complementary hardware products and continuously improving quality and market share." What surprises him is that China, traditionally known for information closure, has now become a global open-source AI leader. This "contrasting strategy" reflects China's highly flexible and pragmatic national policy thinking: "As long as it helps to win, even parts of 'Western values' can be borrowed or transformed." Notably, although the DeepSeek model has built-in censorship mechanisms, this system can be easily bypassed outside China, indicating that China is not too concerned about foreign discourse as long as it does not affect its "internal affairs."

The Rise of Asymmetric Strategy: How Western Countries Break the Deadlock

In this increasingly intense AI war, Balaji calls on the Western tech community to rethink: "How to avoid direct competition with China's open-source models?" instead of just thinking about "What should Google do next"

One potential answer is Bitcoin, as a decentralized and non-replicable digital asset, which could be one of the domains that China cannot directly control. Additionally, building a stronger and more diverse developer community and ecosystem is another response.

He emphasizes that China is taking a strategic path completely different from the 20th century: "While the West turns to closed markets, closed borders, and closed technologies; China chooses 'openness', using 'open source' as a strategic weapon."

As an asymmetric and strategically different technological war, the outcome of this AI race is uncertain but cannot be ignored.