An Artificial Intelligence show in China is like a glimpse into the future.

Indeed, Shanghai has been inundated this week with the industry’s brightest and best for the annual World Artificial Intelligence Conference.

The expo is a seriously impressive display.

Lots of things here are fun and for the crowds – for instance, a basketball court that can suggest improvement to your technique and robotic arms that tell you your horoscope.

But there is serious industry innovation too, that will transform businesses of all kinds – from logistics to manufacturing and construction.

The world will be watching what’s happening here and asking if China is winning the race to develop – and how it will use its new capabilities.

In an atmosphere of extreme competition and tension between it and America, AI is a key front line.

Some of China’s biggest beasts are here and are aware of the race.

Firms such as Baidu – which is China’s equivalent of Google.

It has created China’s most advanced consumer-facing ‘chat bot’ – a language-based programme that is its answer to ChatGPT.

There is clearly massive pride in the work they are doing here, which includes the development of chips, but there is patriotism too.

This is apparent when speaking to Wu Hao, who is a market consultant for Baidu.

“We believe that AI is bound to provide a lot of support for the development of industrial intelligence,” he says.

“When Baidu and Chinese enterprises develop AI-related technology, we follow our president’s command: ‘Setting our sights on the health and safety of the people, major scientific needs of the country, global frontiers of science and technology, and national economic development’.”

China making impressive strides – but still trails US

China is also making very impressive strides in certain areas such as military and cybersecurity fields, but broadly experts agree that overall it is still slightly further behind the US.

The reasons for this are various.

There are three key ingredients that you need in order to have successful AI development: lots of high-quality data, the right people with excellent expertise, and the most advanced software and hardware.

On the first count, it is a mixed picture for China.

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While it has more data than Western countries in some fields, such as facial recognition, there are factors that limit it in others.

For example, the fact that proportionally less of the internet is in Chinese – meaning it has access to less information.

In terms of personnel, experts say there is brilliant Chinese talent, but the recent news that companies like Microsoft are moving AI centres away from China may restrict Chinese access to the very best people in the future.

But it is on the hardware and software front that China has been particularly hampered.

China lacks ‘fundamental’ components for fast development

That is largely because last year the US launched a major new set of export regulations that essentially block China’s access to the very best chips and technology.

And for all the brilliance of its AI developers, the lack of access to these chips and modes of making them is limiting.

It’s something numerous people brought up at the conference, including members of the public,

“I think China is competing well, at the moment,” says Edward Chang, a visiting enthusiast.

“But also it does not have the fundamental things, like big chips or such like, so I think it is unlikely for it to develop fast even if it wants to.”

But there are some areas in which China does have advantages.

‘Data labelling town’ doing vital work

To understand them, we travelled more than 1,000 miles from Shanghai, to a tiny town in the rural province of Guizhou.

Bainiaohe Digital Town is a curious place. It is remote and a little rundown in appearance, but it is doing vital work.

It has become known in some circles as “data labelling town” because there are multiple companies here engaged in this very important endeavour.

It involves people manually “teaching” the computer what it is looking at by literally describing the data – for example, how to tell the difference between a dog and a cat.

It is an area where China is really winning and that is because it has better access to plentiful and affordable labour.

In Bainiahoe, lots of the work is being done by students alongside their studies – people like Su Yong Jiang, who we meet having lunch with his friend.

He tells us he has just arrived and will be doing data labelling.

“I am benefitting from AI’s development,” he says. “It is good to make money and earn a living.”

‘Heavy-handed regulation will hold industry back’

But if people power is a strength, then regulation is a potential drawback and experts agree China is likely to go further than others.

Information is already heavily censored here – indeed draft AI regulations published in China emphasised that products need to be in keeping with “core socialist values”.

“I think China is already regulating more harshly than the rest of the world,” says Karman Lucero, a fellow at Yale University specialising in the regulation of emergent technologies and US/China relations.

“At least in the current state, the heavy-handed regulation will hold the industry back,” he says.

The approach, he says, has thus far been a very broad one.

But the future of the Chinese approach is not clear.

“It’s the cloud of uncertainty it creates,” he explains. “It’s very unclear to tech companies what’s allowed and what’s not, so they’re going to be very hesitant, I think, in ways they might not have been, say in 2015.”

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Back at the conference, there is optimism – though there is also an awareness that AI does need some regulation to protect people and jobs.

This industry is developing so fast that it’s hard to predict what will happen next.

But China is clearly a key player, and it is catching up.