Involution and Overseas Expansion of Chinese AI: Structural Limitations and US Response Strategies

Chinese AI labs are not state-directed organizations but a competitive ecosystem in a state of Involution, where hundreds of companies repeat cycles of extinction and creation through price cuts and talent acquisition. Distillation attacks and token price collapses, which the US perceives as hostile actions, are byproducts of domestic competition without winners, rather than planned strategies.

Overseas Expansion and Capital Market Constraints

Overseas expansion (Chuhai), perceived as the solution to involution, primarily targets US developers. MiniMax reports that over 60% of its revenue in the first half of 2026 is international, while Qwen releases weights under the Apache 2.0 license, generating no direct revenue but driving Alibaba Cloud consumption. However, RMB and USD venture systems do not mix, and capital market structures constrain overseas expansion, as seen in cases like Manus, where overseas sale transactions were canceled due to Chinese government national security reasons.

Hardware Advantage and Software Limitations

If the US handles Intelligence, China builds Bodies. Unitree recorded a profit with approximately $25.7 million in revenue in 2025, and precision component startups are forming supply chains at a pace the US cannot match. Conversely, on the software side, structural limitations exist, including performance gaps due to reliance on distilling US Frontier models, capital market structures demanding early monetization, and chip performance gaps.

Implications for US Developers

Reliance on Chinese open-weight models is subject to others' decisions regarding regulation and weight release policies, so the principle is to download weights, perform Post-train independently, and own deployment. While Chinese tokens are cheap, they are expected to lag in Long-horizon agentic work, which must be considered in product pricing. The US has flaws such as energy and attention deficits, but maintains structural advantages through a functioning capital market and ownership of Frontier models.