China: DeepSeek and beyond

A deep dive into how DeepSeek lifts the lid on China's technological advancements.

AUTHOR Robert Gilhooly Senior Emerging Markets Economist

China continues to surprise the world with its tech. 

DeepSeek, a ground-breaking artificial intelligence (AI) model, has once again highlighted the country’s ability to push the boundaries of technology and challenge established norms. 

China’s rapid progress questions the view that it is simply the world's low-cost factory. The country is now a leader in numerous critical technologies and a contender in many others, driving advancements that will have far-reaching implications for the global economy.

The rise of DeepSeek

DeepSeek, a large language model developed by a Chinese company, has caused a seismic shock in the world of AI. Unlike its counterparts, DeepSeek requires significantly less processing power and fewer advanced chips, making it a cost-effective alternative to better-known models like ChatGPT.

The development cost was initially reported to be only US$6 million. This amount has since been disputed, but the real number will still be a fraction of the billions spent by other companies. This remarkable outcome caused a massive re-pricing of some US tech stocks.

DeepSeek's unique approach to AI model training – known as test-time scaling – focuses on reasoning and time as key variables, allowing it to achieve extraordinary results with more efficient hardware and training techniques.

The latest innovation promises to lower the cost of AI, enabling more participants to develop custom AI models. As a result, the AI industry will see greater competition and product differentiation, driving further advancements in the field.

The AI effect

AI’s influence could be profound. Despite the many uncertainties that lie ahead, it has the potential to drive economic growth, enhance productivity and create jobs.

Chip manufacturers, tech platforms and software companies are likely to be the biggest beneficiaries in the near term. Over the longer term, sectors that employ large numbers of knowledge workers – such as finance, education, and healthcare – are expected to benefit.

However, governments face the challenge of developing policies that balance innovation with oversight. The rapid pace of AI development requires a proactive approach to regulation, focusing on human oversight, accountability, privacy, and bias. Technological superiority also lies at the heart of US-China rivalry.

China's tech landscape

DeepSeek is just one example of China's new technological prowess. The country has quietly become a leader in cutting-edge technologies, driven by strong government support, talent, and strategic investment.

In addition to building the world’s largest high-speed rail network, being the world’s biggest market for electric vehicles, and positioned at the vanguard of 5G communications deployment, here are some other ways in which China excels with technology:

• China leads the world in 37 out of 44 technologies, including in areas that affect defense, space, robotics, energy, the environment, biotechnology, AI, and key areas of quantum technology. For some technologies, the world’s top 10 leading research institutions are based in China and are collectively generating nine times more high-impact research papers than the second-ranked country (most often the US).1 
• China has made significant advancements in biotechnology, including gene editing and synthetic biology. Chinese scientists have narrowed the US’ lead in so-called CRISPR gene-editing techniques and surpassed the US in CAR T-cell therapy.2 CAR T-cell therapy involves modifying a patient's own immune cells in a lab to better recognize and attack cancer cells.
• The country’s push in quantum computing is challenging the US’ leadership position.2 China has reportedly overtaken the US in quantum communication – which uses quantum mechanics to process and transmit information more quickly and securely. For example, it launched the world's first quantum satellite that enables secure communication through quantum encryption.3

The energy transition push

China’s investment in renewable energy technologies, which will support a more sustainable model of economic growth worldwide, is well known.
In 2023, the country accounted for one-third of clean energy investments worldwide, and 2024 appears to be another blockbuster year for solar expansion.4 China’s energy transition pivot helps move it closer to peak carbon emissions while enhancing energy security and supporting economic growth.

China's energy transition credentials can be controversial, as the country is also a significant carbon emitter. Coal remains an important energy source, providing some insurance against the vagaries of renewable electricity generation.

That said, what’s not in doubt is the country’s commitment to developing technology and building a manufacturing infrastructure that will enable the rest of the world to transition away from fossil fuels.

Final thoughts

The launch of DeepSeek is a testament to China's commitment to pushing the boundaries of technology and challenging conventional wisdom. The country’s new-found technological prowess is evident in its ability to innovate and to lead in various fields, from AI to green technology. As China continues to invest in research, talent and strategic initiatives, it is poised to push forward in the global technology race.

1 "The global race for future power. ASPI’s Critical Technology Tracker. Australian Strategic Policy Institute, March 2023. https://www.aspi.org.au/report/critical-technology-tracker.
2 "The Great Rivalry: China vs. the U.S. in the 21st Century." Belfer Center for Science and International Affairs, Harvard Kennedy School, December 2021. https://www.belfercenter.org/publication/great-rivalry-china-vs-us-21st-century.
3 "China Reaches New Milestone in Space-Based Quantum Communications." Scientific American, June 2020. https://www.scientificamerican.com/article/china-reaches-new-milestone-in-space-based-quantum-communications/.
4 "Past and future energy investment in China in the Announced Pledges Scenario and in the Net Zero Emissions by 2050 Scenario, 2016–2030." World Energy Investment 2024. International Energy Agency, June 2024. https://www.iea.org/reports/world-energy-investment-2024/china#abstract.

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