DeepSeek and chip bans have supercharged AI innovation in China – Rest of World
Investors believe practical AI applications will fuel the next wave of growth, with startups building on top of DeepSeek’s foundation.
- DeepSeek has rapidly accelerated AI adoption throughout Chinese society.
- Chinese tech giants have released a wave of free, open-source AI models.
- Startups are under pressure to abandon foundational research as investors prioritize practical applications.
The rise of DeepSeek has reenergized China’s artificial intelligence industry, drawing billions of dollars in state funding and a bigger push toward self-sufficiency. Its success has also sparked a race among startups to build products and services on top of its high-performing open-source technology, even as the country’s tech giants have rushed out competing AI models.
Widening U.S. chip bans, combined with DeepSeek’s success, have pushed the Chinese AI ecosystem to innovate more quickly, strengthening its position in the global tech landscape, experts and investors told Rest of World. It has also forced startups to pivot toward more practical applications.
Kevin Xu, founder of U.S.-based Interconnected Capital, a hedge fund investing in AI, told Rest of World,
DeepSeek has proven that Chinese AI labs can produce frontier models even with export control constraints,
“Its success is also pushing more startups to work on building applications and services, and not waste time and resources building models.”
China lagged behind the U.S in the number of AI models produced last year, but Chinese models are rapidly closing the performance gap with U.S. models, according to a new report from the Stanford Institute for Human-Centered AI. Yet Chinese companies face several challenges, including expanded U.S. export controls limiting access to advanced chips.
DeepSeek claimed to have trained its V3 foundation model — a large-scale AI system trained on vast data sets and adaptable to various tasks — using less-advanced Nvidia chips at a cost of just about $6 million, compared to more than $100 million for OpenAI’s GPT-4 model.
DeepSeek’s efficiency claims are likely shaping investor attitudes about AI companies outside China, too, according to Melanie Tng, an analyst for global market data provider PitchBook.
She told Rest of World,
If high-performing models can be built at a fraction of the cost, it challenges the sustainability of billion-dollar training budgets elsewhere,
Investors in China would now be wary of backing smaller AI firms still focused on foundation models, since DeepSeek’s technology makes it harder for them to compete, said Xu.
A few companies will remain “serious” about advancing AI models, “but most others will focus on building applications, services, agents,”
He said,
That is where the investment will flow to.
Chinese tech giants, meanwhile, are launching new AI models and pouring billions into research, signalling a future where only major players will compete on AI model development, experts said.
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