DeepSeek’s unveiling reveals the depth of China’s AI tech sector

The arrival of a Chinese challenger to the dominance of AI pioneer ChatGPT and its chip suppliers is the wake-up call the US tech titans needed.

The Nasdaq fell almost 4 per cent Monday on talk Chinese generative AI program DeepSeek could outperform big-name rivals. Picture: AFP

The global market shake-up induced by Chinese artificial intelligence lab, DeepSeek, has provided a much needed wake-up call on the depth of China’s work on artificial intelligence.

While developing homegrown technology, including artificial intelligence, robotics and electric vehicles, has long been part of the policies of China’s President Xi Jinping, the emergence of little known Chinese entrepreneur Liang Wenfeng highlights the depth of research being done at the grassroots level in the Chinese tech sector.

Chinese research has been given a high octane boost by moves by former president Biden to ban China from receiving high end computer chips from global companies, and the ban on Chinese having access to US developed AI tools such as ChatGPT.

Faced with not having access to the latest computing and AI technology, there has been a strong focus at a national, state and a grassroots level to develop homegrown AI, with talent coming out of local universities such as Tsinghua University, Peking University and the Chinese Academy of Sciences in Beijing, Shanghai’s Jiao Tong University and Zhejiang University.

DeepSeek has its roots in the desire by its founder, hedge fund manager Liang Wenfeng, to use artificial intelligence to trade financial markets for his quant trading fund, High-Flyer.

The 40-year-old Liang was born in Guangdong province in southern China, but moved to Hangzhou to study electronic information processing and computer vision at Zhejiang University.

His education at Zhejiang University and the broader depth of computing talent in Hangzhou allowed him to pull together some of the best and the brightest minds in the country to achieve his aim of developing an AI product which could help him in his stockmarket trading, setting up DeepSeek in 2023.

The home of Jack Ma, one of China’s most famous entrepreneurs who founded global e-commerce company Alibaba, Hangzhou has long been known as one of China’s great hubs of entrepreneurialism.

The DeepSeek app is displayed on an iPhone screen. Picture: Getty Images

It has a dynamic pro-growth government which has encouraged the development of companies doing research and development on AI.

The city is one of several mini-Silicon Valley style eco-centres in China, looking to encourage local talent and local industries.

Australian-Chinese entrepreneur Michael Wang, who is based in Hangzhou for Sydney-based start-up investment group Fishburners, told the Australian on Tuesday that the group chose Hangzhou as the place to set up in China at the end of 2019 because of its role as a technology hub.

He says the Hangzhou government has extensive policies to support start-ups, including financial assistance.

While the outside world sees China as a top-down government, Wang says while the national government sets the broad policy agenda of specific industries, local and provincial governments are the initial support structures for new companies and start-ups.

It was a sign of how China 2025 works, Liang was asked to appear before a symposium in Beijing on January 20 before China’s Premier Li Qiang. It was part of the government’s deliberations for its annual “work report” which will be released at the annual “Two Sessions” national parliament in Beijing in March.

Robotics was another area singled out for special attention this year, with an appearance by Wei Hongxing, the chairman of Beijing-based AUBO Robotics at the same session.

A year ago it was Baidu’s Robin Li who was asked to appear before the symposium, but Liang’s invitation to appear this year is a sign of the importance now given to AI at the highest levels of policy in Beijing.

The appearance saw the little known Liang become world famous, with one Chinese journalist noting his boyish looks, saying that he looked more like a student representative than a leading figure in the AI sector.

One of the themes from DeepSeek’s emerging success is that China is now looking to its homegrown talent to develop AI, rather than importing talent from US universities.

Work done by The Global AI talent tracker shows that while the US is still the top destination for AI researchers, China now produces around half of the world’s AI researchers – up from only 29 per cent in 2019, with an increasing number working domestically.

Marina Zhang, a technology-focused associate professor at the Australia China Relations Institute (ACRI) at UTS in Sydney, says DeepSeek was developed by a relatively small team led by Liang Wenfeng, using fewer resources than its global counterparts and emphasising algorithmic efficiency over massive hardware deployments.

DeepSeek R1 has been lauded for its strong reasoning and maths capabilities, as well as its open-source approach, which encourages external collaboration and rapid improvements, she says.

Its development follows President Xi’s long-term policies of stressing the importance of reducing reliance on foreign technology and developing robust, homegrown innovations.

“DeepSeek’s success, built entirely in China with local graduates and minimal overseas study, serves as a proof point that Chinese firms can produce cutting-edge AI,” she says. “Xi’s government still maintains control over politically sensitive content, as reflected in DeepSeek’s censorship of certain topics.”

“However, the push for AI leadership means regulators are attempting to create enough space for fundamental research and product development, hoping to rival US tech giants.”

One of the differences with Liang’s approach is his use of new algorithms and software optimisation, rather than relying on hardware superiority or copying existing products.

“This trend aligns with Xi’s broader desire for genuine breakthroughs, not just technology imports or incremental improve­ments,” Zhang says.

She argues that the emergence of DeepSeek is a direct result of Washington’s efforts to hinder China’s access to advanced semiconductors, which “motivated Chinese companies to innovate around hardware bottlenecks.”

Chinese commentators such as former Global Times editor Hu Xijin have been quick to highlight Liang as a shining example of China’s up and coming talent.

“DeepSeek’s launch bolsters Xi’s position that China can independently pioneer top-tier technologies, appealing to domestic audiences and challenging Western assumptions about China’s AI capabilities,” Zhang argues.

When China releases its work report in March about its industry policy, much more attention needs to be given to what it says about China’s AI policies, which have been underestimated for too long.

Originally published as DeepSeek’s unveiling reveals the depth of China’s AI tech sector