Tech exports amid U.S. AI race

This week, I unpack how China is not only striking economic deals but expanding its tech training programs to a slew of countries outside the U.S. orbit. It was one of the announcements coming out of the largest-ever Shanghai Cooperation Organization summit that I attended in Tianjin over the weekend. Enjoy!

This report is from this week’s CNBC’s The China Connection newsletter, which brings you insights and analysis on what’s driving the world’s second-largest economy. Like what you see? You can subscribe here.

A Chinese vocational school in Tianjin is showcasing a vision for the future: a factory automation model powered by Huawei’s Ascend chips and programmed in Chinese characters.

Forget Python, Java, or C — this system skips the Latin alphabet altogether. Nor is Nvidia involved.

The China-centric demonstration was part of a state-organized tour around the Shanghai Cooperation Organization summit, a gathering of countries that are largely outside the U.S. orbit.

As Chinese President Xi Jinping held court in Tianjin this weekend on the sidelines of the largest-ever SCO summit, readouts of his meetings with more than a dozen visiting leaders underscored not only economic cooperation, but increased partnerships around tech and artificial intelligence.

From electric vehicles to industrial robotics and AI, Chinese companies have closed the gap with — and in some areas surpassed — Western competitors, fueled by state policy, subsidies, and ferocious domestic rivalry.

“You’re seeing two dozen global leaders descending upon China, in large part because, A, they want to get some face time with President Xi and B, because there is a huge economic upside to deepening cooperation with China,” Jeremy Chan, senior analyst, China and northeast Asia, Eurasia Group, said Monday on CNBC’s “Squawk Box Asia.”

These countries are “not looking for the emergence of a bipolar world with Beijing and Washington as the two poles,” Chan said. “They’re looking for, if anything, multipolarity and greater optionality for themselves.”

For Azerbaijan, a country by the Caspian Sea with a gross domestic product barely larger than Myanmar’s, it’s keen to do business with China. In a Chinese readout of a meeting with Xi on Sunday, Azerbaijani President Ilham Aliyev affirmed support for Beijing’s stance on Taiwan, and signed documents for cooperation on AI.

Aliyev was then due to have “intensive meetings with the biggest Chinese companies” in energy and communication, Hikmet Hajiyev, assistant to the Azerbaijan president and head of the foreign policy affairs department, told me on the sidelines of the summit.

These business cooperation includes “investments and technology sharing,” he said, without specifying.

“For decades, Beijing has attempted to find ways to connect the Chinese Communist Party with the rest of the world. The Luban [vocational education] program fits into that context,” said Isaac Stone Fish, founder and CEO of U.S. consulting firm Strategy Risks. “It’s a modern version of, say, China sending thousands of engineers to Tanzania to help build a railway there in the 1970s.”

As China exports its technology and equipment, the country is also providing training worldwide through its “Luban Workshops,” including one at the Tianjin Light Industry Vocational and Technical College.

The Luban Workshops, such as one in Egypt, got their start largely due to equipment exports, said Li Yunmei, deputy party secretary and president of the college.

“We are helping the Chinese entrepreneurs in going abroad,” she added in Mandarin, via an official translation. She told me that partners include home appliance companies and wind turbine producers, and that all students must also take an introductory AI course.

The Tianjin school’s Huawei-based factory automation model may so far be more symbolic than indicative of what factories use right now. But it reflects what’s on the curriculum for the Chinese and international students.

The school, which is about a two-hour drive from Beijing, is set to welcome 12 students from Egypt in the coming weeks, following an earlier cohort from Uganda this year, according to Wang Baolong, director of the college’s mechanical engineering department. He was responding to reporter questions as part of the state-organized tour around the SCO summit.

In 2021, Xi had announced plans for 10 Luban workshops in SCO countries over the next three years. Xi on Monday said that China would establish 10 more such schools over the next five years, and support training for 10,000 people.

China has already established Luban workshops, named after a legendary craftsman, in more than 20 countries, including Thailand, India and Portugal.

China’s ambitions don’t stop at the vocational level.

Xi on Monday said that starting next year, China will increase scholarships for students from SCO countries and launch a doctoral degree program for scientific and technological research. That’s in addition to his other announcements for the creation of three China-SCO centers for tech innovation, higher education and vocational training.

“We are ready to build with all sides the AI application cooperation center and share the dividends of progress in AI,” Xi said in Mandarin, via an official English translation.

China has also built an “SCO Development Zone” in its eastern Shandong province for launching trade and industrial development with member countries. Local representatives said last week that a “Shandong-Hong Kong” center for tech cooperation had completed 29 projects linking tech, talent and capital together for SCO states.

In a “Tianjin Declaration” at the close of the SCO Summit, members called for deeper education cooperation to reduce digital divides, and noted the potential of platforms such as an AI innovation center in Kazakhstan.

As China goes neck and neck with the U.S. in the AI race, the vocational training workshops could give Beijing an edge in shaping a tech-driven future — if they prove to be more than showcases.

Daniel Heyler, senior analyst at EFM Asset Management, said that since China will be the biggest beneficiary of AI economically, investors should not only think about having positions in the individual chipmakers, but broaden it out to companies that would benefit from utilizing the technology.

Brahma Chellaney of New Delhi’s Center for Policy Research said it is against India’s long-term strategic interests to join an ‘authoritarian gang-up’ against the West, as the Shanghai Cooperation Organization increasingly resembles one.

Jeremy Chan of Eurasia Group discussed how the prominence and relevance of the Shanghai Cooperation Organization meeting have evolved, and the impact of Trump’s policies on its mission.

Alibaba is on an AI roll. The Chinese tech company last week reported a surge in cloud computing revenue. It’s also developing a new chip designed for artificial intelligence applications, two people familiar with the matter told CNBC.

U.S.-China trade limbo lingers. While the world awaits a Trump-Xi meeting, Chinese Vice Commerce Minister Li Chenggang met with U.S. Treasury, commerce and trade officials in the U.S. from Aug. 27 to 29, according to a Chinese readout.

China’s EV deliveries rebound. Startup Nio is on the up again with  which include its two lower-priced sub-brands. But Li Auto is struggling as deliveries slump for a third-straight month.

Chinese markets were in focus Wednesday following President Xi Jinping’s speech at a military parade to commemorate the 80th anniversary of the end of World War II. The event was graced by 26 world leaders, including Russian President Vladimir Putin and North Korea’s leader Kim Jong Un.

Hong Kong’s Hang Seng index fell 0.6% to close 25,343.43, while mainland China’s CSI 300 declined by 0.68% to close at 4,459.83.

The HSI has climbed 26.34% since the start of the year, while the CSI 300 is up 13.34%.

Sept. 8: Trade data for August

Sept. 10: Inflation data for August