For once, one could not accuse Donald Trump of exaggeration. The arrival of budget Chinese chatbot DeepSeek to rival ChatGPT is nothing less than a wake-up call to the US tech giants and their presumptions of technological superiority. It is a wake-up call to Wall Street. It is a wake-up call to any developed nation who might deign to enter the AI marathon, our century’s equivalent of the Space Race.
All of that is true even if it turns out that DeepSeek does not turn out to be all it is cracked up to be. If it is the real deal, then the Chinese have created nothing less than a premium-quality AI product that is available freely and at a tiny cost. That would be a Big Deal, but not the first time the world’s current hyperpower found itself outpaced. In 1957, the US was stunned when the Soviet Union became the first country to launch an artificial satellite. It has been equally taken aback by the arrival of DeepSeek. Truly could this be a Sputnik moment?
To be sure, there are legitimate questions as to whether a Chinese startup can manage to achieve on a shoestring what US tech giants with all their political, financial and intellectual resources have been forced to spend billions of dollars on. Their doubts may prove to be correct, but that doesn’t affect the bigger picture: China’s threat to western technological dominance is real and more than just ‘emerging.’ The rush to win the AI race will be just as competitive – and perhaps even more so – than the space race of the 1950s and 60s for China carries a bigger economic clout than the Soviet Union ever did.
In the early days of its Deng Xiaoping-inspired rapid economic development, China was seen as the place where US and European companies could outsource production. After all, labour was cheap and moving manufacturing offshore held out the promise of higher profits. The idea was that all the really advanced stuff – product design, research and development – would be done in the west. It would only be the assembly work – the ‘grunt’ work - that would end up in Guangdong. The creativity needed to come up with new ideas and new products would be stifled by China’s Marxist-Leninist system and its tendency to quash innovation.
Hubris is a recurring theme in human history. That xenophobic view, tinged as it was with racist overtones, has proved to be all too complacent a view. In 2023, China filed more patents than the rest of the world put together. Chinese universities are turning out on average more than 6,000 PhDs in the Stem (science, technology, engineering and maths) fields a month – more than double the number in the US. As DeepSeek shows, China is building a growing cadre of very bright people quite capable of thinking outside the box when they are allowed to do so, as has certainly been the case with the development of AI, lithium-ion batteries and electric vehicles.
Of course, the US is aware of the threat to its hegemony, wrested as it was from Japan, and the determination to curb China’s economic strength is nothing less than a rare bipartisan issue in Washington. The tariffs on Chinese imports into the US imposed by Trump in his first term were kept in place – and added to – by Joe Biden when he became president. Indeed, a week before leaving office, Biden imposed fresh restrictions on the export of US-developed computer chips to prevent countries such as the Middle Kingdom gaining access to advanced technology. Biden’s Inflation Reduction Act offered subsidies to encourage climate-friendly products to be made in the US.
And Trump alone is accused by the ‘mainstream’ press as being “protectionist?”
In some sectors it may be too late. China is already the biggest exporter of electric vehicles, prompting protective tariffs from the US and the EU. The lithium-ion batteries being produced by Chinese factories cost a seventh per kWh of what they did 10 years ago. This should not have come as a surprise to the US and other western nations that a global division of labour, in which they did all the low-cost grunt work, would have only limited appeal to the Chinese. After all, what society on earth wants to be known only as a source of cheap labour, or even be the world’s lo-tech factory? Instead, China has made a concerted attempt to keep producing shoes, toys and TV sets while also moving into higher-tech sectors. The fact that it actually has a detailed strategy whereby its technological advances are being field and user-tested everyday through its competitively-priced cell phones, tablets (and semiconductor tools) by an all-to-willing western consumer market speaks of long-term, even visionary, planning.
The strategy may have its limitations. There is an argument that China’s economic model will eventually become incompatible with its political model, and that the demands for democracy will eventually force the Communist party to become less repressive. Nor is China entirely free of economic problems. Many of its state-owned companies currently operate at a loss. The bubble in the property market has well and truly burst with potential consequences every but as dire as that which Japan faced when its own “bubble economy” went bust.
Even so, it is clear that the cold war for AI supremacy is heating up fast. Donald Trump thinks that some competition from China is no bad thing for the US tech sector, and he is absolutely right, for Americans react best when faced with challenges to what they believe to be their areas of interest. Share values of tech stocks on Wall Street took a tumble after the DeepSeek news broke because it called into question whether the massive investment in US companies was worth it, but the availability of lower-cost models will speed up the use of AI. While there are clearly risks in this – for privacy, security and for jobs – there are also huge potential benefits for ‘insurgent’ business models to gain market share, if not outright dominance. After all, not so long ago, even Apple, Google and Meta were but gnats when compared to the reigning tech giants of the time like IBM and Sony.
Given the immediate trendiness of the subject there is no lack of politicians rushing to make announcements about wanting their countries to become AI players. Like most technological advances this will become more of an attainable goal will be more realistic as development costs drop over time. But such bloviating is mere theatrical posturing, and it would do well for these would-be heralds of the new age to more carefully study how China even got to its DeepSeek moment.
Its hi-tech sectors did not just magically appeared, as if magically conjured up by fairy godfather Xi Jinping. There has been intense research, vast investment, no small amount of strategic planning and a long runway. One just has to walk along any ASEAN street to see the fruits of such diligence in how China has essentially carved out its huge (and ever-growing budget EV market position). In semiconductors Dutch company ASML’s near global monopoly will come under increasing pressure from Chinese factories producing similar chipmaking machines at 30% of the cost (as some already are). Furthermore, these are not mere cheap knockoffs, but products made with quality and increasingly efficient methods.
Like other east Asian countries before it, China took a strategic view of the industries in which it wanted to be competitive, unhesitatingly invested heavily to get them established, protected them when they were in their infancy, and waited patiently for the results. There has been no dogged belief in market forces, nor has there been an aversion to picking winners. The contrast to the rest of the world could not be starker.
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