"Opportunity or Setback for China?" Democrats’ US Midterm Victory Opens New Phase in AI Competition, With China Controls, Technology Gap and Big Tech Lobbying as Variables

Democratic control of Congress expected to dampen US AI infrastructure investment; will China gain more opportunities to catch up?
Tighter AI controls on China remain possible, while gaps in AI companies’ technological capabilities and profitability persist
US Big Tech lobbying could also cushion the policy impact, with data center development likely to shift locations

With Democrats winning control of both the Senate and the House in the US midterm elections, analysts say the contest between the United States and China for artificial intelligence (AI) supremacy could also shift. If Democrats tighten regulations on AI model development and data centers, US infrastructure investment could slow somewhat, giving China an opportunity to catch up. Some observers, however, counter that Democratic-led policy changes would not necessarily benefit China. They point to the strong possibility that Democrats will tighten controls on Chinese companies’ access to advanced US-made semiconductors and computing resources at overseas data centers, as well as the United States’ continued lead over China in the performance and profitability of advanced AI models.

Democrats Retake Congress: Good News for China?

According to Britain’s Financial Times (FT) on the 9th, Meng Qinji, a global governance researcher at China’s Tsinghua University, said the Democrats’ midterm victory could offer an opportunity to narrow the AI gap between the United States and China. The argument is that stronger regulations on data center construction and AI companies by Democrats, who have regained majorities in both chambers, would cool the US infrastructure investment boom. Gary Ng, a senior economist at French investment bank Natixis, also said, "China will see a slowdown in the development of the US AI industry as an opportunity to catch up with the United States," adding, "China has favorable conditions, including limited resistance to data center construction, abundant electricity supplies and a well-developed industrial ecosystem."

These assessments come as legislative efforts to regulate the AI industry take shape following the midterm elections. Democratic lawmakers plan to introduce a series of bills strengthening safety testing for AI models and regulating data center development when the new Congress convenes next January. Whereas the outgoing Republican-led Congress prioritized technological development and infrastructure expansion while refraining from directly restricting business activities, Democrats appear to be emphasizing consumer protection and greater accountability for developers. Specific legislative priorities under discussion include easing the burden on household electricity bills from the proliferation of data centers, mandating independent safety evaluations of advanced AI models, and clarifying developers’ legal liability for harm caused by AI systems.

Risk of Tighter Controls

Some observers, however, say the Democrats’ midterm victory will not necessarily work in China’s favor. Dan Wang, an analyst at political risk consultancy Eurasia Group, told the FT, "The Democrats’ approach to China differs considerably from that of US President Donald Trump," adding that "the shift in the balance of power in Congress could actually deal a bigger blow to China’s AI industry." Democrats could impose stricter limits on Chinese companies’ access to advanced US-made semiconductors and AI technology on national security grounds.

Major Chinese technology companies, particularly ByteDance, Alibaba and Tencent, are being mentioned as potential targets of regulation. These companies are known to have used computing resources at data centers in Southeast Asia and elsewhere to circumvent US semiconductor export controls. Because US restrictions focus on physical equipment entering China, their strategy exploits a regulatory gap by remotely using US-made products installed at data centers in third countries. According to the Carnegie Endowment for International Peace, a US think tank, the US Commerce Department’s Bureau of Industry and Security (BIS) has the authority to restrict such access through conditions attached to export licenses for the equipment, but has yet to exercise that authority actively.

US and Chinese AI Capabilities Still Far Apart

There are also assessments that China’s AI industry will struggle to erode US companies’ lead in AI capabilities in the short term. Chinese companies have expanded their influence in the global AI market through low prices and open models. According to the "2026 State of Enterprise AI" report released on the 4th by US venture capital firm Menlo Ventures, Chinese AI models accounted for around 89% of US companies’ spending on open AI models. The problem is that open models represented just 4% of total enterprise AI spending. In the paid enterprise AI model market, Anthropic and OpenAI maintained an overwhelming lead, with shares of 55% and 31%, respectively.

The profitability gap is also clear. Last month, AI research organization Epoch AI estimated that the combined AI-related revenue of six major Chinese AI companies, including DeepSeek and Zhipu AI, amounted to only about 10% of the combined revenue of OpenAI and Anthropic. Open models, which Chinese companies emphasize, can be downloaded and run on companies’ own servers or accessed through third-party services, limiting the revenue captured by the original developers. Epoch AI noted that unless Chinese companies overcome this limitation, they may struggle to recoup their enormous research and development costs, weakening their capacity to invest in next-generation AI models.

Table 1. Limits to China’s AI Industry Catching Up With the United States

Clear Gaps in Technology and Infrastructure

China has also been slow to catch up in technological competitiveness. Under the new "Intelligence Index v5" evaluation metric released on the 27th of last month by AI benchmarking organization Artificial Analysis, Moonshot AI’s "Kimi K3.1 Pro" scored just 46 points. That was well below the 58 points earned by Anthropic’s "Claude Opus 5.5." The gap between the best-performing US model and open models, which had narrowed to 3 points under the previous evaluation framework, widened to 12 points after the methodology was revised. Meanwhile, China’s DeepSeek "V4.1 Flash" and Zhipu AI’s "GLM-5.3," both of which have publicly available model weights, scored only 32 points each.

A substantial capability gap is also evident in computing resources, which are essential for developing advanced AI models. According to Epoch AI’s analysis, 72% of the AI computing resources newly added worldwide from 2022 through June of this year were concentrated in the United States, while China’s share was only about 10%, including domestically produced semiconductors. A large proportion of the AI semiconductors China has secured are either products with reduced performance designed to comply with US export controls or domestically produced chips, leaving China at a pronounced disadvantage in actual computing performance relative to chip numbers.

Interests Surrounding the AI Industry

Some also predict that Democrats may adjust policy toward stronger safety testing and consumer protection obligations for companies, rather than impose stringent regulations that would depress AI capital expenditure across the board. This is because Democrats, too, have interests linked to the AI industry to some extent. An analysis by global consultancy D&A Advisory of 63 fundraising organizations registered with the US Federal Election Commission (FEC) found that 59.4% of the USD 1.16 million in contributions from the so-called "Magnificent Seven"—Nvidia, Google, Microsoft (MS), Amazon, Meta, Apple and Tesla—went to Democrats. Among these companies, Google, MS, Amazon and Meta are pursuing massive AI investments, including developing their own AI models, building data centers and securing advanced semiconductors, and could suffer significant damage from tighter regulation.

Regulation of data center construction may also focus on shifting development locations rather than halting investment altogether. Opposition to data center construction is spreading in large US cities and affluent suburbs, where Democratic support is relatively strong, while small towns in Republican-leaning areas are competing to attract such facilities. For example, according to The Washington Post (WP), residents of Harwood, North Dakota, rejected a ballot measure on the 3rd that would have imposed additional review procedures on large industrial facilities, including data centers, with 105 votes in favor and 325 against. Harwood, which has a population of just 845, expects its annual property tax revenue to rise to USD 1.65 million after the data center is completed, roughly 6 times its 2024 level. By expanding data centers primarily in these small towns, Democrats could address their core supporters’ concerns about electricity bills and the environment while maintaining the AI industry’s growth momentum.