US-China Quantum Race Tightens

Context

The competition between the United States and China for dominance in quantum computing has moved from academic laboratories to state policy and industrial strategy. Recent reporting by Investing.com (published March 28, 2026) frames this contest as a top-tier tech rivalry with direct implications for national security and economic competitiveness (source: Investing.com, Mar 28, 2026). The shift is measurable: the US National Quantum Initiative Act, signed into law in 2018, authorized approximately $1.275 billion over five years to coordinate federal quantum research (source: U.S. Congress, 2018), while the 2022 CHIPS and Science Act directed roughly $52 billion toward semiconductor incentives and broader research support, creating new pathways for quantum hardwaresupply-chain investment (source: White House, 2022). Those policy moves contrast with China's concentrated programmatic approach and state-backed laboratory investments that, by multiple accounts, have accelerated university–industry pipelines and regional industrial clusters.

Historically, milestones in the field provide useful reference points for assessing technological momentum. Google’s 2019 demonstration of a 53-qubit processor that claimed a form of quantum computational advantage marked the first widely publicized scientific milestone (source: Google AI Blog, 2019). IBM followed with its 127-qubit Eagle processor announced in 2021, underscoring rapid scaling in superconducting qubits (source: IBM press release, 2021). These discrete achievements are relevant, but they do not alone determine commercial or strategic supremacy: system error rates, coherence times, quantum error correction progress, control electronics, and manufacturing scale remain critical variables. For institutional investors and policy stakeholders, the relevant analytic lens combines capabilities (qubit counts and fidelities), supply-chain resilience (fabrication, cryogenics, photonics), and governance (export controls, IP regimes, talent mobility).

The current period is therefore characterized less by a single definitive winner and more by an accelerating divergence of models. The US approach emphasizes public–private partnerships, R&D subsidies, and regulation (including export controls) to shape industrial outcomes. China has pursued a centralized, top-down model that links national laboratories with state-owned and private enterprises and targets rapid deployment of quantum communication and certain specialised quantum processors. Each path produces trade-offs: the US model can accelerate commercial ecosystems and global alliances, while China’s model can concentrate resources for targeted breakthroughs and rapid upscaling within domestic markets.

Data Deep Dive

A rigorous assessment requires concrete data on funding, milestones, and industrial footprints. As noted, the US National Quantum Initiative Act (2018) authorized approximately $1.275 billion over five years to coordinate federal agency investments in quantum science and technology (source: U.S. Congress, 2018). The CHIPS and Science Act (2022) then broadened the fiscal toolkit by channeling about $52 billion to reshape the semiconductor and advanced technology landscape, including ancillary benefits for quantum-relevant fabrication (source: White House, 2022). On technical milestones, Google’s 2019 53-qubit demonstration and IBM’s 127-qubit Eagle (announced 2021) illustrate rapid scaling; however, qubit count is an incomplete metric without fidelity—error rates for two-qubit gates often remain in the 10^-3 to 10^-2 range for superconducting platforms, while photonic or trapped-ion systems report different trade-offs between gate speed and connectivity (source: peer-reviewed literature and vendor disclosures, 2019–2023).

Patent and talent flows provide additional quantifiable signals. Patent activity in quantum technologies rose materially in the 2010s and early 2020s, with notable clusters in the US, China, and the EU; corporate R&D spending on quantum research by major incumbents (IBM, Google/Alphabet, Microsoft, Alibaba, Tencent) has been in the hundreds of millions annually, with bespoke national laboratories receiving multi-hundred-million-dollar commitments in some cases. Meanwhile, startup formation has been robust: venture capital invested in quantum startups exceeded several hundred million dollars annually in the early 2020s, though deal activity and valuations fluctuated materially in 2022–2025 as macro conditions tightened (source: industry VC reports, 2020–2025). These numbers underline a multi-dimensional race: government appropriations provide the backbone, corporate R&D drives systems-level work, and private capital seeds applied platforms.

A meaningful comparison is year-over-year progress in core performance metrics. For example, between 2019 and 2021, the largest publicly announced superconducting processors moved from tens to more than a hundred qubits (Google 53 qubits in 2019 vs IBM 127 qubits in 2021), a >100% nominal increase in qubit count for leading platforms in that window (sources: Google AI Blog, 2019; IBM press release, 2021). Yet error-corrected logical qubits—widely viewed as the threshold to general-purpose quantum advantage—remain elusive, and estimates on when practical, fault-tolerant systems arrive vary widely across academic and industry forecasts (2025–2035+ ranges in public forecasts). That uncertainty is central: near-term commercial value is concentrated in quantum sensing, cryptography-resistant communications, and specialised optimization routines rather than universal quantum computation.

Sector Implications

For incumbent semiconductor firms, the quantum push has both upside and disruption risk. Large foundries and materials providers stand to gain from new process demands—ultra-low-loss materials, precision lithography for novel qubit designs, and cryogenic control electronics—if they can tailor manufacturing lines without compromising classical semiconductor margins. For example, the CHIPS Act’s capital incentives create a financing backdrop for fabs to invest in quantum-compatible tooling, but conversion of classical fabs to quantum-specific capabilities remains technically and economically non-trivial. Quantum-native device manufacturers—those producing superconducting qubits, trapped-ion arrays, and photonic circuits—face a bifurcated market: deep-pocketed hyperscalers and governments for bespoke systems, and a longer-term commercial market for cloud-accessible quantum services.

In services and software, the quantum stack represents one of the more immediate commercial opportunities. Companies offering hybrid quantum-classical algorithms, error mitigation software, and industry-specific quantum-ready applications (e.g., finance, logistics, materials discovery) can scale their addressable markets sooner than hardware vendors. Clients prioritising resilience—financial institutions or defense contractors—will increasingly demand roadmaps for post-quantum cryptographic transitions and quantum key distribution trials. Those dynamics encourage partnerships between hardware vendors and software incumbents; the US policy environment, with funding and consortium models, favors ecosystems that can aggregate demand and accelerate standards (see our broader coverage on industrial tech strategies at Fazen Capital insights).

Regional comparisons are instructive: North American and European ecosystems emphasise interoperability, standards, and market mechanisms, while China’s cluster model can reduce coordination friction and accelerate domestic procurement. Each pathway creates winners among suppliers: EU firms specialising in photonic integration may outperform on international exports, while Chinese fabrication partners may dominate volume for domestic quantum communications deployments. Institutional investors must therefore separate hardware-cycle timing from long-term structural winners in software, materials, and system integration.

Risk Assessment

A sober risk appraisal must account for technological, geopolitical, and commercial contingencies. Technologically, scaling qubits while reducing error rates remains the fundamental constraint; breakthroughs in error correction or novel qubit modalities could reorder vendor hierarchies rapidly. The geopolitical layer compounds this: export controls on advanced lithography and specialized electronics can bifurcate supply chains, as observed with semiconductor restrictions since 2022. Regulatory fragmentation—differing standards on encryption, data flows, and cross-border research collaboration—can impose significant operational overhead on multinational firms and slow diffusion of best practices.

Commercially, overinvestment risks exist. The allure of headline qubit counts and national programs can encourage capital allocation that underestimates time-to-market for revenue-generating applications. Venture cycles already compressed in 2022–2025 show that capital for deep tech is sensitive to macro conditions; should global funding retrench, hardware projects with long timelines and high burn rates would be most vulnerable. Conversely, concentrated state support (as in China) can sustain programs through funding cycles but may reduce attractive exit pathways for private investors if domestic IPO and M&A markets remain constrained. These dynamics argue for diversified exposure across the stack and careful stress-testing of scenario assumptions.

From a national-security perspective, the prospect of quantum-enabled code-breaking remains a long-range risk that motivates proximate investment in post-quantum cryptography. Agencies and large corporates are already budgeting for multi-year transitions; for example, several national standards bodies accelerated post-quantum cryptography workflows in the early 2020s. This policy-driven demand represents a predictable, albeit phased, revenue stream for vendors helping enterprises migrate to quantum-resistant protocols.

Fazen Capital Perspective

Our view is contrarian to simple narratives that frame the contest as a zero-sum race decided by qubit counts. Instead, the more important battleground for institutional investors and policy makers is the ecosystem that converts scientific progress into repeatable, defendable economic value. That ecosystem comprises IP depth, supply-chain resilience, standards adoption, and recurring revenue models for software and services. While headline milestones (e.g., Google’s 2019 53-qubit experiment and IBM’s 2021 127-qubit announcement) garner attention (sources: Google AI Blog, 2019; IBM, 2021), they understate the practical value captured by middleware, error-correction toolchains, and cryogenic electronics suppliers.

A second non-obvious insight: strategic patience and modular exposure are prudent. Investors who overweight early-stage hardware plays risk concentration in long timelines; those who underweight adjacent segments (materials, instrumentation, cloud-based quantum services) may miss earlier cash flows and absorption into existing enterprise procurement cycles. We therefore advocate scenario-oriented allocation frameworks that differentiate between short-cycle, policy-driven demand (e.g., post-quantum cryptography services) and long-cycle, high-uncertainty hardware bets. For a detailed take on how industrial policy reshapes investment landscapes, see our research hub at Fazen Capital insights.

Finally, supply-chain security will be a decisive determinant of who captures value. Export controls can stall diffusion of certain tools, but they also create domestic demand and captive markets; firms and nations that invest in redundant capabilities (materials, control electronics, and packaging) will be better positioned to translate lab advances into industrial-scale deployments.

Outlook

Over the next five years the quantum domain will likely evolve into a stratified market: near-term commercial traction will concentrate in sensing, communications (including quantum key distribution pilots), and hybrid algorithm services, while universal, fault-tolerant quantum computation remains an R&D-led horizon event. Policymakers in the United States and allied countries will continue to blend direct funding (building on the National Quantum Initiative and CHIPS Act) with regulatory and export-control tools to shape the international competitive landscape. China will persist with a centrally coordinated approach that can achieve depth in specific subfields, particularly quantum communications and domestic laboratory-scale processors.

For institutional stakeholders, the practical implication is to track leading indicators beyond qubit counts: fabrication partnerships, supply-chain contracts, standards participation, and revenue visibility from quantum-related services. Comparative metrics—such as year-over-year increases in disclosed government allocations, patent filings, and commercial contracts—offer more actionable signals. Given the heterogeneity of technologies and timelines, investors and policymakers should adopt modular strategies that hedge across technologies (superconducting, trapped-ion, photonic) and market segments (hardware, middleware, services), while monitoring policy shifts closely.

Bottom Line

The US-China quantum competition is intensifying, but victory will be defined by ecosystem depth and the ability to convert research into reliable, commercial systems rather than by headline qubit counts alone. Strategic, scenario-driven positioning that prioritises supply-chain resilience and software/services exposure offers the most pragmatic pathway for stakeholders.

Disclaimer: This article is for informational purposes only and does not constitute investment advice.

FAQ

Q: How soon could quantum computing threaten current encryption standards?

A: Current public assessments and vendor roadmaps estimate practical threats to widely used public-key cryptography as a multi-year issue; many standards bodies accelerated post-quantum cryptography work in the early 2020s and recommend phased migration over a 5–15 year horizon depending on sensitivity of the data. Practical decryption of large-scale asymmetric cryptography requires fault-tolerant quantum hardware significantly beyond current noisy intermediate-scale devices, so the immediate imperative is migration planning rather than emergency replacement.

Q: Can export controls meaningfully slow China's progress?

A: Export controls can constrain access to specific advanced tooling (e.g., EUV lithography, certain cryogenic control components), which raises costs and timelines for domestic programs. However, state-coordinated efforts can substitute or domestically develop alternatives over time. Historically, dual-use controls alter diffusion pathways but rarely eliminate indigenous capability development when state resources and industrial policy are aligned.

Q: Where are near-term commercial opportunities most likely to emerge?

A: Near-term opportunities are clearest in quantum-safe cryptography services, quantum-inspired optimisation algorithms deployed on classical hardware, quantum sensing, and cloud-based hybrid quantum-classical services. Hardware-driven commercialisation for universal quantum computing is a longer horizon and remains contingent on error correction advances and scalable manufacturing.