Two years ago, I wrote about the brewing battle for AI supremacy between the US and China, viewed through the lens of two internet ETFs: First Trust’s Dow Jones Internet Index Fund (FDN) and KraneShares’ CSI China Internet ETF (KWEB). At the time, the US was riding a wave of ChatGPT-fueled mania while China was still finding its footing post-lockdown.
Today, in early 2026, the landscape has shifted. The naïve view that China is permanently lagging is officially a relic of the past. We are now witnessing a global duopoly where both nations are forging ahead, albeit with strikingly different playbooks.
The US: Defending the Frontier
The US remains a powerhouse of foundational innovation, driven by a robust private ecosystem and massive infrastructure investment.
The FDN ETF continues to be dominated by familiar giants such as Amazon, Meta, Salesforce, Cisco, and Netflix. While I once questioned the complacency or lack of imagination behind Salesforce’s Einstein GPT, the sheer scale of US tech has proven resilient. US capital flows remain concentrated in moonshot ventures and proprietary models, though this concentration is becoming a double-edged sword as investors worry about idiosyncratic risk.
China: The Rise of the Predictive State
To get a handle on China's major tech firms, we look to the KraneShares ETF, founded by Jonathan Krane who utilized local knowledge in Shanghai to gain an edge. While the US builds the frontier, China is redefining the application.
China's strategy has shifted from catch-up to co-architect. They have pivoted toward embedding AI deeply into the physical economy—what we might call ecommerce 2.0. The KWEB ETF, featuring Tencent Holdings, Alibaba, and Baidu, has evolved as these firms integrate AI into logistics, robotics, and manufacturing.
The Real Politics is Still Real
If you think the obsession with AI began only recently, think again. It has been over seven years since Kai-Fu Lee wrote AI Superpowers, telling the story of how this topic became an engine of growth for both nations.
The political interference I warned about in 2023 has only intensified. In China, the authorities have clamped down on the way tech is used, whereas in the West, the debate over regulation continues to lag behind the pace of innovation. Much like GDPR, Europe has moved quickly to impose restrictions, further fragmenting the global tech landscape.
For the ETF investor, the lesson remains the same: diversified tracker funds now carry significant geopolitical risk. When the fortunes of whole industries are at the behest of politicians, the stakes are high. As an investor, the Real Politics of ETF investing means recognizing that you are investing in two different visions of the future.
Until next time.
Allan Lane