China’s ability to scale has given its start-ups a significant edge in the AI industry, as evidenced by DeepSeek, a Chinese AI company that has leveraged known engineering tricks to create products comparable to top US models at lower costs. While not a trailblazer, DeepSeek is still a game-changer due to its cost-efficient approach.
The optimisation of processes has long been a Chinese manufacturing superpower, driving domestic dominance and overseas expansion in various industries. Now, it’s coming for Silicon Valley. The US can no longer take comfort believing it rules software, while China dominates hardware production.
DeepSeek deviates from the typical pattern of new technologies emerging in the US, being transferred to China through state-orchestrated tech transfers or reverse engineering. Instead, it emerged self-funded by a former hedge fund manager and was spurred on by China’s strategic necessity to survive computing power scarcity imposed by US export controls.
As a result, DeepSeek has plenty of opportunities to optimise usage in China’s techno-industrial cluster, with dozens of Chinese automakers and semiconductor design firms integrating its technology into their products. This integration is likely to generate mutual benefits and drive product enhancements and process efficiencies.
The US has been the pioneer in AI, but it struggles with scaling. The cost efficiency of a pioneer is not comparable to that of a follower, as pathfinding is inherently inefficient. However, scale advantage compounds itself, and volume compensates for low margins, driving rapid product refinement and continuous process optimisation.
China’s national champions often outcompete incumbents and establish deep market moats, while few challengers have the stomach to commit massive capital outlays only to fight painful price wars. Dominance in one sector also accelerates breakthroughs in adjacent technologies.
DeepSeek should worry Silicon Valley, as US tech companies struggle to scale like their Chinese counterparts. The company’s success highlights the need for American manufacturers to learn to make products quickly, reliably and cheaply, or risk falling behind Chinese competition.
Source: https://www.ft.com/content/45e68ec1-d370-486b-958b-ecfae0def2d9