What the US and China Should Discuss at APEC

Recent high-level meetings between the United States and China, including presidential summits and economic consultations, have established a dedicated channel for discussing AI risks and benefits. This progress signals a willingness from both sides to manage the potential dangers of AI, with leaders expressing support for continued dialogue and joint prevention of misuse.

Despite diplomatic progress on AI safety, the financial sustainability of the AI sector in both countries faces increasing scrutiny. U.S. frontier AI businesses are grappling with assumptions about exponential compute demand, reliable revenue conversion, and patient capital that are proving risky. The capital expenditure required to stay competitive is unprecedented, and Wall Street is questioning returns, especially after Chinese open-weight models demonstrated high performance with significantly less compute.

China faces a mirror-image problem, striving to close the AI frontier gap under foreign constraints while needing to justify massive domestic spending. A September study by the Rhodium Group calculated that the combined free cash flow of Chinese tech giants Alibaba, Tencent, and Baidu swung from positive 170 billion yuan in 2025 to negative 16 billion yuan in the first half of 2026. Similarly, five American hyperscalers saw their free cash flow fall from $191 billion to $14 billion and raised $163 billion in long-term debt in six months to maintain their build-out, indicating that neither country's AI sector can sustain its growth from operations alone.