CHINA LAUNCHES AN AI COMEBACK

DeepSeek and other Chinese tech firms have erased much of Silicon Valley's lead in artificial intelligence—showing how China's “fast followers” can still win a business race.

- NICHOLAS GORDON

THE U.S. INNOVATES, CHINA ITERATES. That aphorism—or its less flattering version, “China imitates”—dominates many conversations about the relative strengths of the world’s largest and second-largest economies. The U.S., the narrative goes, sits on the technological frontier, creating groundbreaking products and services that chart the course of the world economy. China takes those ideas and builds on them, spitting out cheaper—and perhaps inferior—versions.

In AI, that cliché seemed for years to be based in fact, as Chinese companies struggled to keep up with free-spending, talent-rich U.S. tech giants. But this January, a Chinese startup undercut that narrative.

Hangzhou-based DeepSeek—not even a tech company, strictly speaking, but an offshoot of a hedge fund called High-Flyer—released R1, a “reasoning” large language model (LLM) that matched the performance of OpenAI’s 01, which had been released just a few months earlier. Not only had R1 seemingly come out of nowhere, it was both remarkably innovative and astoundingly cheap. The final “training run” for its predecessor, V3, had cost a mere $6 million, according to DeepSeek—“a joke of a budget,” in the words of former Tesla AI scientist Andrej Karpathy, compared with the tens or hundreds of millions spent on some of its U.S. rivals.

The impact of the news was enormous: As R1 rocketed to the top of most-popular-download lists, Big Tech investors panicked, wiping out over $1 trillion in value from tech stocks like Nvidia and Microsoft.

Leaders like OpenAI CEO Sam Altman agonized in public and mused about converting to open-source—as DeepSeek had done, making its model publicly available and modifiable, and therefore cheaper to use.

“A lot of us, including myself, got this wrong, in terms of China's ability to develop these cutting-edge breakthroughs,” says Jeffrey Ding, assistant professor of political science at George Washington University and author of the ChinAI newsletter.