US advisory body says China's data dominance gives it AI advantage

The U.S. congressional advisory body, the U.S.-China Economic and Security Review Commission, has stated that China is leveraging data as a strategic national asset to bolster its Artificial Intelligence (AI) and technology ambitions, potentially providing it an edge over the United States in the AI race. Beijing is harnessing data to enhance productivity, intelligence gathering, and military capabilities, according to the report released on Tuesday by the Commission.

While major U.S. AI corporations have largely tapped the open internet for language model training, China is systematically gathering domestic enterprise, operational, and physical-world data which is difficult to scrape. This domestic data is crucial for training AI tools for business, autonomous vehicles, and humanoid robots, areas that Beijing is using as symbols of its top-down innovation drive.

For instance, China's advanced manufacturing and industrial robotics sectors provide a substantial reservoir of high-quality data, notably for embodied AI applications - AI systems that operate in the physical world like robots, potentially giving it an edge over the U.S. in developing robotics software for commercial and military uses.

Over the past five years, China has been able to consolidate, label, refine, and gather new data, ensuring its swift availability to its entities. Mike Kuiken, the Commission's vice chair, noted in an interview that China has capitalized on this to advance its innovation ecosystem and strengthen the control of the Chinese Communist Party.

However, China has also tightened its regulatory oversight of cross-border data transfers in recent years, leading to compliance challenges for foreign multinational firms operating in the country. To comply with China's cross-border data regulations, these firms have had to localize their China subsidiaries and segregate their China customer data from their global operations, despite Beijing introducing limited exemptions for some firms.

The report emphasized that China has elevated data to a core factor of production, alongside land, labor, capital, and technology, and established the National Data Administration body in 2023 to oversee nationwide data standardization and classification, aiming to build a unified national market for data trading. Beijing has also commercialized and deployed data in its digital economy, alongside a broader push to deploy AI across all industries.

It aims to standardize data assets across critical sectors like manufacturing, transport, finance, and healthcare, while Chinese firms have begun listing their proprietary datasets on regional data exchanges in cities such as Shanghai, Shenzhen, and Beijing.

The Commission has recommended that the U.S. Congress consider developing a national data strategy and treating data as an economic asset, as its primary recommendation.