Seldom does one company manage to make a trillion dollars disappear from its competitors’ stock market valuations in a single day. Nevertheless, a little-known Chinese artificial intelligence start-up named DeepSeek did just that — and overnight became one of the world’s most famous companies. Journalists Madhumita Murgia, Richard Waters, and Eleanor Olcott report, “Its release of a new AI model, known as R1, upended assumptions about US supremacy in AI and raised the prospect that some in China are learning how to beat Silicon Valley at its own game. The model can ‘reason’ to solve complex scientific problems and performs at par with leading-edge software from US tech giants, but was apparently developed at a fraction of the price of those models. It quickly dislodged OpenAI’s ChatGPT as the most-downloaded free app on the US iOS App store.”[1] Competition in the artificial intelligence (AI) sector is often depicted as a race. Venture capitalists Nathan Benaich and Alex Chalmers explain, “AI progress from Chinese labs has received significantly less attention than the model race between the biggest US labs. Commentary tends to be written from the standpoint of ‘who’s winning?’ and ‘are sanctions backfiring?’ and look to find a one-word answer.”[2] As expected, one word answers fail to capture the complexity of the current situation.
Clearly, the commercial world was shaken by the jolt provided by DeepSeek. Murgia and her colleagues write, “The question being asked with sudden urgency from California to Wall Street: Has China caught up in AI at just the moment that many working in the field claim they are on the brink of a historic breakthrough that will put machines on a par with human-level intelligence — a threshold known as artificial general intelligence?” You can almost sense the fear.
The Current State of Play
If you are wondering why did DeepSeek caused such a commotion, you would do well to look at the theory of disruptive innovation advanced by the late Harvard Business School professor Clayton Christensen. According to the Christensen Institute, “Disruptive Innovation describes a process by which a product or service takes root in simple applications at the bottom of the market — typically by being less expensive and more accessible — and then relentlessly moves upmarket, eventually displacing established competitors.” DeepSeek fits into that pattern. Kristian Hammond, a professor of computer science at Northwestern University, notes, “The fact that DeepSeek could be built for less money, less computation, and less time — and can be run locally on less expensive machines — argues that as everyone was racing towards bigger and bigger, we missed the opportunity to build smarter and smaller.”[3]
Murgia and her colleagues add, “Ironically, Washington’s attempt to hamper China’s AI sector by imposing export controls on high-end US chips from 2022 onwards may have contributed to DeepSeek’s breakthrough. Without access to leading-edge silicon, the company was forced to find innovative ways to squeeze higher performance out of the less sophisticated chips it was able to buy. The company’s claims about the low cost and advanced capabilities of its models have touched off a heated debate about how disruptive the company will turn out to be. Silicon Valley’s leaders have paid tribute to its innovations, while also playing down their significance.”
DeepSeek’s strategy seems to be working. Journalist Xinmei Shen reports, “US technology firms have been racing to adopt the latest artificial intelligence reasoning model from Chinese start-up DeepSeek despite increasing global scrutiny of the Hangzhou-based company, which claims it can develop industry-leading models at a fraction of the usual cost.”[4] Not surprisingly, the American company OpenAI accused DeepSeek of stealing intellectual property — an accusation made against many Chinese firms.[5] OpenAI says it found evidence that DeepSeek used OpenAI proprietary models to train its models. Regardless of how DeepSeek and other Chinese AI companies are making their breakthroughs, progress is being made. Benaich and Chalmers write, “We’ve made no secret of both our concerns about the Chinese Communist Party’s AI ambitions or our belief in the responsibility of the technology sector to contribute to defense and national security.”
Concerns abound about the trustworthiness of any software coming out of China. Even though DeepSeek has not raised any external financing, it is not free from constraints imposed by the Chinese government. Journalist Jinhan Li reports, “Like other Chinese artificial intelligence chatbots operating under China’s regulatory framework, DeepSeek’s responses to politically sensitive topics reveal clear limitations. Instead of nuanced analysis, it often dodges controversial issues, delivers vague answers or echoes state-approved narratives.”[6] According to journalist Steven Lee Myers, those state-approved narratives include a lot of Chinese Communist Party propaganda. He explains, “If you’re among the millions of people who have downloaded DeepSeek, the free new chatbot from China powered by artificial intelligence, know this: The answers it gives you will largely reflect the worldview of the Chinese Communist Party.”[7] He adds, “The tool’s features are raising the same concerns that have bedeviled TikTok, another hugely popular Chinese-owned app: that the tech platforms are part of China’s robust efforts to sway public opinion around the world, including in the United States.” Additionally, the staff at Vectara indicates that DeepSeek-R1 hallucinates more than its competitors’ models.[8] It could be a case of “you get what you pay for.”
Concluding Thoughts
No one should doubt the Chinese government’s commitment to artificial intelligence. Information technology specialist Hodan Omaar explains, “DeepSeek exemplifies the symbiotic relationship between China’s AI firms and the state. Companies that prove themselves aren’t left to grow alone — once they demonstrate capability, Beijing reinforces their success, recognizing that their breakthroughs bolster China’s technological and geopolitical standing. This creates an AI ecosystem where state priorities and corporate achievements fuel each other, giving Chinese firms an edge while putting U.S. firms at a disadvantage.”[9] And no one should doubt that the Chinese Communist Party will use AI capabilities to help it remain in power while undermining the credibility and capabilities of those who oppose it. That places legitimate Chinese AI firms between a rock and a hard place when it comes to the advancement of AI.
Tilly Zhang, a China tech analyst at Gavekal Dragonomics, concludes, “DeepSeek’s latest models may not mean that China is pulling ahead of the US in the AI race, but it does prove that Chinese companies are making remarkable strides in software innovation that mitigate the constraints imposed by US export controls. AI leadership is no longer just about who has access to the best chips, but about who puts them to best use.”[10] The US must relentlessly push the envelope of artificial intelligence research — not only to stay ahead of China but also to discover ways of combatting nefarious uses of AI systems. As I wrote in a recent article, “By 2030, three transformative forces — climate change, artificial general intelligence (AGI) and quantum computing — will converge, reshaping the global business landscape in ways never seen before. Together, these forces could upend industries, redefine economies and force companies to reevaluate how they adapt, innovate, and grow.”[11] They could also reshape the global security landscape in ways the US and the rest of the west won’t like.
Footnotes
[1] Madhumita Murgia, Richard Waters, and Eleanor Olcott, “The global AI race: Is China catching up to the US?” Financial Times, 31 January 2025.
[2] Nathan Benaich and Alex Chalmers, “The State of Chinese AI,” Air Street Press, 18 July 2024.
[3] Ben Turner, “Why is DeepSeek such a game-changer? Scientists explain how the AI models work and why they were so cheap to build.” Live Science, 31 January 2025.
[4] Xinmei Shen, “Tech war: US firms embrace DeepSeek’s AI model despite scrutiny,” South China Morning Post, 1 February 2025.
[5] Cristina Criddle and Eleanor Olcott, “OpenAI says it has evidence China’s DeepSeek used its model to train competitor,” Financial Times, 29 January 2025.
[6] Jinhan Li, “What questions will China’s DeepSeek not answer?” Deutsche Welle, 31 January 2025.
[7] Steven Lee Myers, “DeepSeek’s Answers Include Chinese Propaganda, Researchers Say,” The New York Times,
[8] Staff, “DeepSeek-R1 hallucinates more than DeepSeek-V3,” Vectara Blog, 30 January 2025.
[9] Hodan Omaar, “DeepSeek Is a Reality Check Washington Can’t Afford to Get Wrong,” Center for Data Innovation, 30 January 2025.
[10] Murgia, Waters, and Olcott, op. cit.
[11] Stephen DeAngelis, “How Climate Change, AGI And Quantum Computing Could Change Business,” Forbes, 30 January 2025.
