Experts warn U.S. grid limits could hand AI advantage to China
In the U.S., power constraints have become the single biggest bottleneck to the AI buildout. In China, it is a very different story.
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As America’s power grid creaks under the strain of breakneck expansion and electricity demand from AI data centers, China is facing a very different situation, experts say — and it could have big implications for the global tech race.
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Rui Ma, a U.S. expert on Chinese technology and founder of media outlet Tech Buzz China, posted on X that energy is considered a “solved problem”.
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Ma, who recently took colleagues to Shanghai to talk to businesses about AI developments in the country, said insiders told her China does not face the same capacity issues as the U.S. because of its supply.
“The Chinese government’s investment in sustainable energy — from advanced hydropower to next-generation nuclear — means that, relative to many other markets, electricity supply is secure and inexpensive,” she wrote. “Everywhere we went, people treated energy availability as a given.”
China is by far the world’s biggest power producer. The International Energy Agency reports it generated nearly 9,000 TWh of electricity in 2022 — about double U.S. output and more than 30% of the global total.
“This is a stark contrast to the U.S., where AI growth is increasingly tied to debates over data center power consumption and grid limitations,” Ma wrote on X.
In the U.S., power constraints have become the single biggest bottleneck to the AI buildout, according to JLL, with data center vacancy rates dropping to a record low of 2.3%. The surge in demand has created an unprecedented mismatch between what companies need and what the grid can deliver.
So great is the crunch in the U.S. that developers are increasingly bypassing utilities to build their own power plants, while residents face rising bills, a Deloitte survey showed. In Ohio, for example, average household costs climbed by at least $15 this summer due to data center demand.
The constraints come as the industry grapples with questions about whether the AI buildout is sustainable. OpenAI CEO Sam Altman recently admitted that the industry is in the midst of an AI bubble, though he still plans to spend "trillions" on data center construction.
Meanwhile, Morgan Stanley estimates the industry needs $3 trillion in global investment by 2028, raising concerns about whether the massive spending can generate returns before the infrastructure becomes obsolete.
In China, meanwhile, government-led investment has created what experts call an electricity surplus. David Fishman, a China energy analyst, told Fortune that the country maintains reserve margins of 80%–100%, compared to roughly 15% in the U.S..
China’s advantage stems from centralized, long-term planning, Fishman told the news outlet. State-directed investment makes sure infrastructure is built ahead of demand, even if projects lose money in the short term.
In the U.S., by contrast, private capital drives energy projects, but investors typically demand returns within five years — far shorter than the decade it can take for grid projects to come online.
“U.S. policymakers should be hoping China stays a competitor and not an aggressor,” Fishman said. “Because right now they can’t compete effectively on the energy infrastructure front.”