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Not only is China growing faster than any other big economy; it's poised to take the lead in artificial intelligence applications to manufacturing, health care and transportation, leapfrogging the West in key new technologies. President Joe Biden's chief Asia advisor Kurt Campbell says the U.S. should "balance between cooperation and competition" with China. We're already far behind on the competition for leadership in a wide range of AI applicationsan issue with urgent implications for American policy.

China is well on its way to building a planned 10 million 5G mobile base stations by 2024, wiring virtually the whole country for game-changing technologies. It has already deployed some of them in its response to COVID-19. Sensors connected to smartphones and linked to centralized databases monitor the vital signs of hundreds of millions of Chinese citizens and visitors in real time. Three-dimensional facial imaging allows these systems to monitor the mobility of people and contact with others. Artificial intelligence algorithms extract information from these data to identify potential viral hotspots and guide forensic testing and preventive quarantines. China's effective control over the virusdespite some localized outbreaksprovides further impetus to speed up the adoption of digital heath technology.

The 3D facial recognition component of China's public health initiatives have drawn international concern. U.S. commentators focus on its implications for social control, but the technology has already been incorporated into a wide range of remote services. With 3D facial recognition, people in China can board trains, buy produce and obtain medical services without physical contact. The majority of the Chinese population is willing to accept the possibility of invasions of privacy provided the benefits are clear.

Many of these public health technologies are here to stay. In the next few years, China is expected to deploy an advanced medical system that uses big data and sensors. Key to this new health system will be robots, which will rely on big data to conduct various tasks, including elderly home care.

Robots will also be vital in manufacturing. The nearly instantaneous response time of 5G broadband allows them to share information and even devise autonomous production processes on the factory floor.

Manufacturing for high-technology devices such as smartphones is already highly automated, and no other country can match the high quality level and low manufacturing cost of China's system. Because China includes both government agencies and private corporations in its high-tech manufacturing sector, the competitive barriers against other countries are rapidly increasing.

Another emerging application of AI in China is "smart farms," which run on local 5G networks that gather information from sensors at the level of individual plants. Drones and driverless vehicles apply water, fertilizer and pesticides as needed. Huawei is already exporting smart farm technology to Brazil, Malaysia and Turkey.

China is also becoming the global leader in autonomous transportation. The country intends to shift to self-driving passenger and delivery vehicles by 2035. This is an extremely ambitious goal that will require large investments.

Autonomous transportation will require the coordination of automobiles, buses, local trains, high-speed trains and other forms of transit. Entirely new cities are being built to support autonomous transportation, though converting existing cities will be the greater challenge. AI will play a key role. Baidu, Alibaba Group, Tencent and others are collaborating with Chinese automobile companies to develop vehicles, while a new generation of drones is under development for goods transport.

China, meanwhile, is building its supply chain for batteries and other components of electric vehicles. It will have the largest battery capacity for electric cars over the next few years, with the expectation of producing 21 million in 2030. The situation is analogous to solar cellsof which Chinese companies have 85 percent of the world's capacity.

China is also the world leader in digital currency. Between 75 and 85 percent of the population already uses smartphones to pay for goods and services, as a result of the widespread adoption of Alipay, WeChat Pay and other competing services.

As the first to market with a national digital currency, China has an advantage in promoting the yuan as a challenger to the U.S. dollar in international trade. This promises to reduce transaction costs and eliminate the need for trillions of dollars in bank balances, most of which now are held in U.S. dollars. The first adopters will be China's key trading partners, specifically within the Belt and Road Initiative.

For all the talk about shifting supply chains away from China, no other economy has the labor force and infrastructure to make much of a difference. Surging U.S. demand for medical equipment and consumer electronics pushed Chinese exports to the U.S. to record highs last year. This occurred despite the higher prices that U.S. consumers and corporations paid for Chinese products because of tariffs. Most Chinese factories will run at full capacity in 2021. Their biggest problem is a shortage of containers required to ship products to the U.S. and other countries.

Returning U.S. manufacturing jobs from China will remain a difficult task. American companies are reluctant to make the large capital expenditures required to build highly automated manufacturing facilities for high-tech products domestically. But that does not mean American policymakers' hands are tied. There are at least four lessons they can take from China's AI success.

First, China will not bend to U.S. pressure to change its economic management model. China's economic performance in 2020 showed the resilience of the country's technology companies in the face of American sanctions. It also persuaded Chinese leaders that they have no reason to accept American demands to change their system. Beijing will only be more confident asserting its global position in the near future.

Second, America has little leverage to bring about political change in China. The Communist Party of China retained its credibility after the initial shock of the pandemic and will keep its "Mandate of Heaven" in 2021 and beyond. Tariffs and technology boycotts under the Trump administration failed to contain China, and undermined America's standing in the world.

Third, America must develop a cohesive strategy for the "Fourth Industrial Revolution" and persuade its allies that American leadership is in their best interest. Federal funding for research and development would have to double to restore the relative level of the 1980s, when the United States invented the digital economy. Although the Biden campaign promised more spending to promote American technological leadership, the scale of the requirement is far greater than either American political party has grasped.

Fourth, America must address the fundamental reason for its manufacturing decline: governments in Asia subsidize capital-intensive manufacturing while the American corporate tax structure favors "capital-light" software and service businesses. If the U.S. is to surpass China in manufacturing, telecommunications and weaponry, it needs an industrial policy that guides capital back to capital-intensive investments.

Handel H. Jones is the founder, owner, and CEO of International Business Strategies, Inc. David P. Goldman is Deputy Editor of Asia Times and author of You Will Be Assimilated: China's Plan to Sino-Form the World (Bombardier Books).

The views in this article are the writers' own.

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China is Winning the Artificial Intelligence Race | Opinion - Newsweek