US vs China in AI (Part Three): How Competing Rules, Chips, and Ecosystems Are Shaping a New Digital Cold War
In 2013, Merkel referred to the internet as “Neuland” (uncharted territory), a phrase that quickly became a meme symbolising the slow pace at which German politics embraced digital transformation. Analysts point out that this was part of a larger trend: throughout much of her time as chancellor, digital policy was seen as a minor issue, associated more with youth culture and niche innovations than with economic competitiveness and national resilience.
It wasn’t until after 2018 that Berlin initiated a more robust Digital and AI strategy, which included a plan for a 3-billion-euro AI program set for 2025. At this moment, China was already implementing its 150 billion USD AI national strategy. Germany’s 3 billion euros is a direct public-spending commitment over a fixed period; China’s 150 billion USD is a target for total industry scale, backed by a mix of subsidies, local government programs, SOEs, and private capital. The contrast still illustrates the order-of-magnitude gap in ambition and framing: Germany approached AI as a strategic but incremental policy field, while China framed AI as a pillar of national industrial transformation with triple-digit-billion market goals built into its top-level plan.
Believing that the Internet was a Neuland in Germany while the world was enjoying iPhone version 5 had profound consequences for German competitiveness today.
Weak broadband, lagging digital public services, and the need for expensive catch-up programs slow innovation and economic growth. A more digitally aggressive strategy in the 2000s and early 2010s might have avoided what German businesses face today. This sentiment echoed former Managing Director McKinsey of Germany and Austria, Cornelius Baur, in my recent Leading Through Disruption interview: “We missed our chance after the euro’s introduction to invest in digital capabilities. The signs were evident. At McKinsey, we published numerous articles highlighting what happened in China and the US. Yet, Europeans preferred comfort over change and investing in digital education.”
Would Germany and other European companies begin to utilise Chinese AI to reduce costs?
Currently, most European businesses that are serious about AI tend to rely significantly more on US ecosystems—like Nvidia hardware, US hyperscalers such as AWS, Azure, and Google Cloud, as well as US-origin frontier models—rather than on Chinese AI, due to issues related to trust, export controls, and regulatory challenges.
Certain niche or budget-conscious projects may discreetly utilise Chinese cloud services or tools—particularly for tasks related to Chinese operations or markets—but no EU nation has officially declared a preference for the Chinese AI ecosystem. Instead, policy documents characterise China mainly as a competitor and systemic rival in the AI landscape, rather than a favoured collaborator.
At the European Union level, the trend is shifting away from reliance on Chinese critical technology. Brussels is implementing stricter regulations on Huawei and other Chinese suppliers in the 5G sector and core infrastructure, while several member states are gradually removing Chinese components from their telecommunications networks entirely.
New initiatives like the Apply AI strategy, the upcoming EU Cloud and AI Development Act, and broader “sovereign cloud” discussions explicitly aim to reduce dependence on both US and Chinese providers by building a more autonomous European stack. Apply AI strategy and related documents explicitly warn that AI and cloud stacks could be “used as a weapon.”
I believe it’s time to move beyond illusions and objectively evaluate if Europe can truly enhance its development of foundational AI technologies and strengthen national AI infrastructures. Right now, I’m not feeling particularly optimistic.
In Germany, the absence of national AI platforms and infrastructure could potentially encourage the adoption of Chinese technologies in the future. A divide may emerge between DAX companies and other firms, as the DAX is Germany’s primary blue-chip stock market index, tracking the performance of the 40 largest and most liquid firms on the Frankfurt Stock Exchange. These prominent industry players will likely adhere to the official stance against utilising Chinese technologies. However, I’m uncertain whether the German Mittelstand (small and medium-sized companies) will adopt the same approach, as the Mittelstand constitutes the largest share of the German economy! These SMEs are already facing challenges due to the mass retirement of skilled workers, a lack of new apprentices to fill labour shortages, and insufficient prior digitisation efforts. They need to be mindful of costs, which may allow Chinese providers to penetrate the market.
To what extent are Chinese AI and cloud companies already present?
Chinese tech firms such as Huawei and Alibaba Cloud already provide cloud and AI services from data centres in Europe, targeting sectors like automotive, retail, and gaming. Alibaba Cloud has announced expansion with new data centres in France and the Netherlands, explicitly marketing AI and machine-learning solutions to European businesses.
Companies from Germany and France have poured investment into China’s AI sector and established AI laboratories in the region (e.g., Siemens and Volkswagen), thereby forging strong technical connections with the Chinese ecosystem, while their primary infrastructure in Europe often remains rooted in the US or the EU.
We are still in the early stages regarding the Chinese AI and cloud landscape.
In summary, although Chinese AI infrastructure is utilised in some regions of Europe, the political and regulatory climate is focused on reducing strategic reliance on both Chinese and US AI, rather than actively favouring the Chinese ecosystem. However, this legislative direction may be challenged by the economic needs of small and mid-sized enterprises, and they are dominating the European economy. Changes will likely be gradual and not immediately apparent until they become noticeable to all.