Opinion | Hong Kong can take the regulatory high road amid US-China AI decoupling

The market realignment over the past week starkly captures the self-defeating logic of America’s technology containment strategy.
The momentum began on June 15, when the shares of Chinese artificial intelligence pioneer Zhipu AI, which trade in Hong Kong under Knowledge Atlas Technology, surged by 48 per cent intraday after it announced the open-source release of its GLM-5.2 foundation model. The rally continued this week, with Zhipu’s shares trading at an intraday high of HK$2,980 (US$380) in the morning of June 22, briefly driving market capitalisation past HK$1.2 trillion – a 25-fold appreciation on its January debut.
This massive capital migration followed a sudden regulatory intervention on June 12, when the US Commerce Department ordered California-based Anthropic to block foreign access to its new Fable 5 and Mythos 5 models. Because Anthropic could not practically verify user nationalities in real time, it had to shut down both flagship models globally for everyone, lock out its own non-American staff and downgrade affected subscribers to an older model.
Although Washington blamed a “jailbreak” security vulnerability, Anthropic’s technical review showed the exploit involved only minor flaws that already exist in other publicly available models.
The situation is profoundly ironic. Anthropic supported Washington’s export controls, actively lobbying for stricter cross-border limits. Having helped build this regulatory framework, the company is now trapped by it, exposing a fundamental flaw in techno-nationalist logic. Washington treats software models like physical nuclear components, yet software cannot be embargoed like hardware. Because code moves instantly, denying access simply drives other nations to develop alternative technologies more quickly.
This architecture did not emerge overnight. Since October 2022, Washington has systematically restricted Nvidia’s advanced silicon, expanded its blacklist and globalised these controls by bringing foundational open-source models under its restrictive umbrella.

While this containment strategy assumed that choking off critical inputs would permanently halt Chinese capabilities, empirical data shows the opposite. Zhipu’s market performance is not an outlier. Geopolitical friction has fundamentally rewritten the rules of market valuation, accelerating Chinese technological self-sufficiency rather than delaying it.
What we are witnessing, I would argue, is the emergence of a global “sovereign AI premium” that mirrors the geopolitical trajectory of the aerospace sector. Companies like SpaceX operate under strict US International Traffic in Arms Regulations (ITAR), which legally restrict non-US persons from accessing critical technology.
This weaponisation of AI models has triggered widespread panic well beyond China. From Europe to Tokyo and the Middle East, governments now realise an over-reliance on US foundation models introduces severe national security and operational risks. Anthropic’s shutdown of AI models showed a nation’s digital ecosystem could be paralysed overnight by foreign regulatory caprice.
Constrained access to American semiconductors has redirected massive domestic capital into sovereign alternatives. As a result, Chinese foundation models are rapidly dominating enterprise AI across manufacturing, public services and finance throughout Southeast Asia and broader emerging markets.
This real-time formation of a distinct technological bloc signals that decoupling is no longer a theoretical risk but a commercial reality. Meanwhile, US companies bear the asymmetric costs of this policy volatility, as smaller AI start-ups see their international plans paralysed by regulatory uncertainty.

For Hong Kong, this fragmented landscape offers both a warning and a unique strategic window. As a stable jurisdiction with a common-law system and direct mainland connectivity, the city can bridge diverging AI ecosystems. To do this, Hong Kong must establish a highly predictable governance framework that contrasts with Washington’s volatile posture.
Specifically, the newly formed Committee on AI+ and Industry Development Strategy should deploy a tiered regulatory sandbox – restricting high-risk applications like biometric surveillance, while letting business-to-business commercial research proceed with minimal friction. This balance can provide the operational stability currently scarce globally.
Hardware infrastructure must accompany this regulatory clarity. While the Sandy Ridge data facility cluster aims to deliver 180,000 petaflops by 2032, this horizon remains too distant for start-ups currently dependent on overseas cloud providers.
The government must urgently subsidise and expand accessible, midscale graphics processing unit (GPU) clusters deliverable within the next 18 months, paired with scaled-up cross-border data sharing within the Greater Bay Area under robust privacy safeguards.

Implementing policy is one thing; mobilising talent is another. Hong Kong must confront a blunt reality: we cannot win the war for top-tier AI engineering talent. For instance, prominent AI researcher Yao Shunyu’s decision to join Tencent Holdings perfectly illustrates where the true gravitational pull of massive compute and commercial scale lies.
Instead of chasing raw model development, the city should leverage its strength: an extraordinary density of five universities among the world’s top 55. This academic base should pivot towards the institutional architecture around AI, cultivating “regulatory generalists” – compliance professionals and lawyers who can navigate the interface between Beijing’s data regimes and international frameworks.
This talent pool can work directly with university researchers specialising in AI safety, algorithmic fairness and compliance auditing, where we already hold a global advantage. Linking the government’s HK$50 million (US$6.38 million) AI literacy budget with fellowships at the coming Hong Kong AI Research and Development Institute would properly anchor this focus.
When a single geopolitical directive can disrupt a technology model overnight, institutional predictability becomes a premium economic asset. Hong Kong possesses the legal infrastructure, capital markets and geography to serve as the connective tissue between diverging technological ecosystems. The task now is to build the regulatory clarity and physical infrastructure necessary to make that role real.