(TMTPOST)—China is lagging behind the United States by at least two years in the worldwide competition to lead artificial intelligence (AI) development as Chinese mainland companies grapple with technology restrictions imposed by Washington, according to Joe Tsai, the co-founder and chairman of Alibaba Group Holding.

Tsai made the comments in an interaction with Nicolai Tangen, the CEO of Norway’s Norges Bank Investment Management, on his podcast ‘In Good Company.’

Tsai pointed out that China’s tech companies are “possibly two years behind” the top AI firms in the U.S., such as OpenAI. He noted U.S. export restrictions that deny Chinese companies’ access to advanced semiconductors, such as the highly sought-after graphics processing units (GPUs) from Nvidia, have “definitely affected” tech firms on the mainland, including Alibaba.

“I think today we're probably two years behind the top models. So, last October, the U.S. put in very stringent restrictions on the ability of companies like Nvidia to export high-end chips to every company in China. So they've sort of abandoned the entity list approach and they put entire China on their list. I think we're definitely affected by that,” Tsai said.

“We’ve actually publicly communicated that it did affect our cloud business and our ability to offer high-end computing services to our customers,” he said. “So it is an issue in the short run, and probably the medium run.”

Tsai suggested that Chinese technology companies are actively seeking solutions to minimize the effects of these restrictions. They include exploring alternative suppliers for advanced processors and increasing their inventory of available chips in the market.

"It's a big issue. It's something that everybody is trying to grapple with. In the short run though, I think prior to the restrictions coming down, people have stocked up inventory. So, currently, you know I think in the next year or 18 months, the training of large language models can still go ahead given the inventory that people have."

"I think there's more high computing that's required for training as opposed to the applications that people call inference. On the inference side, there are multiple options. You don't need to have as high power and high-end chips as the Nvidia’s latest model," Tsai pointed out.

"I think in the next year or 18 months, the training on large language models (LLMs) can still go ahead, given the inventory that people have," Tsai said. LLMs are the technology applied to train ChatGPT and similar generative AI systems.

 He predicted that "China will develop its own ability to make these high-end GPUs" over the long term.

"AI is essential," Tsai emphasized. "Having a good large language model developed in-house is very, very important because it helps our cloud business."

 Tsai was born in Taiwan, China in 1964. He is a Canadian of Chinese descent and also a permanent resident of Hong Kong, China. Tsai holds a Bachelor's degree in Economics and East Asian Studies from Yale University, a Juris Doctor degree from Yale Law School, and is a qualified lawyer in the state of New York, U.S.

In 1999, Tsai joined Alibaba Group as Chief Financial Officer. He subsequently facilitated Alibaba's investments from companies like Goldman Sachs and SoftBank Group, and completed IPO listings on the Nasdaq in the United States and in Hong Kong, China.

Tsai, taking over as Alibaba’s chairman last September, said at an event in October that Alibaba Cloud, still the leading provider of cloud infrastructure services in Chinese mainland, aims to transform AI into a significant productivity tool, particularly for small and medium-sized enterprises.

Speaking of China-U.S. trade relations in the podcast, Tsai said that Alibaba is one of the strongest companies globally in terms of compliance structure, not limited to China but globally.

"Speaking of U.S.-China specifically, if you look at Alibaba, we do so much business on behalf of U.S. companies. We sold over $60 billion of American products to Chinese consumers annually. That trade is two-way. In Europe, about 14 billion euros of French products to Chinese consumers, seven billion German products to Chinese consumers,” he explained.

"These are all really great stories that people really don't understand. Alibaba is good for the world, good for global trade. Set in that context people can understand Alibaba better, and really not say ‘oh you're just a Chinese company that is trying to flood the market with your cheap Chinese products’. I think it's very important for the world to know Alibaba is here to do business globally," he said.

He further spoke on the challenges of doing business in the U.S. "Just generally being a Chinese company in the U.S., we have to be very careful. For example, we don't have much of a consumer-facing business in the United States and that's because there are concerns about data privacy, cyber security and things like that. These are some of the issues that we will have to navigate in the future."

Tsai believed that China will not lose its status as the world's factory. In terms of economic scale, labor force, and quality, countries like Mexico and Vietnam cannot be compared to China.

He also talked about the global perception of China. "I think people tend to be categorical about China whereas a lot of the truth is somewhere in between. I find this talk about whether China is investable or not quite ridiculous. You're talking about the second largest economy in the world, a very industrious labor force as I referred to before. 800 million people that are working very hard."

 "I don't think it's constructive to talk about whether to pull out from China or investable in China. I think people have to recognize that you can't bet against the Chinese people. This is an economy that'll be around for a long time and that'll actually be good for the world."

When asked about advice for young people, Tsai strongly recommended young people develop a specialization, such as programming, data science, or psychology, to become part of the top 10% in the crowd. Becoming an expert is the most effective way to gain respect.

"I think there are some fascinating things in how the human mind and brain work. If you have the ability to program, like many young people do now, they will learn how to program in Python or Java or other languages, understand data science, and learn some psychology, you will be equipped with all the tools you need to be successful in life," Tsai said.