US-China AI war boils down to a contest over electricity

Dr Andy Xie is a Shanghai-based independent economist specialising in China and Asia, and writes, speaks and consults on global economics and financial markets.The proliferation of Artificial Intelligence models and the increasing parity in their performance suggest they are becoming a commodity. Soon, AI services will be priced by cost rather than the uniqueness of their model. With electricity the main cost of the services, the AI war between China and the United States is turning into a straightforward contest over electricity output and price.Open-source AI models are sprouting up like bamboo shoots in China. The American AI community has argued that they are not as good as the closed-source models in the US. Yet recent releases by DeepSeek and Zhipu AI have eliminated the perceived gap. The American goal of making the world dependent on its AI and paying dearly for it now seems like a pipe dream.This rapid proliferation reveals the true nature of AI, whether a large language model or specifically a generative pre-trained transformer. It turns out it is not that hard to create an AI model. Hence, the value of owning a model, whether frontier or not, isn’t so high any more. As more models join the market, they will become a commodity, like steel or aluminium. And the price of services, or tokens, will be driven by the dominant cost component: electricity.