China is closing the gap with the US in AI by spending far less money, which is good for China and a growing threat to America's expensive lead.

• The US is spending the most on AI, but China is winning more customers while spending 10 times less.
• China's trick is "distillation" — training cheaper models by studying the answers of existing top models instead of building from scratch.
• It works like copying someone's homework: you get the answer for almost no money.
• So the US pours trillions into the hardest research, and China compresses those results into small, cheap models and gives them away.

Outlook: Expect the cost gap to keep pressuring US AI firms as China's cheaper, giveaway models pull in more users.