Market Data 
- DeepSeek has sent shockwaves through the technology, financial, and geopolitical spheres.
- The low-cost Chinese AI chatbot won’t surprise anyone who knows Beijing’s playbook.
- Chinese has disrupted many industries in similar fashion, including mining and electric vehicles.
A Chinese startup’s launch of a ChatGPT rival has startled tech gurus, stunned investors, and stupefied geopolitical commentators. But DeepSeek’s upheaval of the AI race shouldn’t surprise anyone familiar with China’s disruption playbook.
DeepSeek’s debut of its latest AI models has flipped over the table, with venture capitalist Marc Andreessen hailing it as a “Sputnik moment” on X.
There was broad consensus that advancing artificial intelligence would require more and more computing power. Companies were poised to line up in droves to buy Nvidia’s latest graphics chips, and pour money into building sprawling data centers.
President Donald Trump, SoftBank’s Masayoshi Son, OpenAI’s Sam Altman, and Oracle’s Larry Ellison recently announced Stargate, a joint venture to invest at least $100 billion into US computing infrastructure to power AI progress, and as much as $500 billion over four years.
DeepSeek promptly released two AI models comparable to the available US ones, saying it spent less than $6 million on computing power for one, and relied on older Nvidia H800 chips. The company has said its open-source model is 20 to 50 times cheaper to use than OpenAI’s o1 model, depending on the task.
The revelation floored many, especially as the US has restricted exports of powerful AI chips to China for years on national security grounds.
Investors suddenly realized Nvidia might not sell as many chips in the coming years as they expected. They promptly cut its market value by almost $600 billion on Monday — more than Mastercard, Exxon Mobil, or Oracle are worth. They also punished other US tech names, given the prospect of fierce foreign competition eating into future profits.
DeepSeek also upturned the narrative around the global AI race, as the US lead over China suddenly doesn’t look so big. The startup’s founder, Liang Wenfeng, reportedly attended a private gathering last week hosted by Chinese Premier Li Qiang, suggesting the state might see DeepSeek as a way to catch up to the US despite Washington’s best efforts to starve it of the components it needs.
Given all the fanfare and drama, it’s worth underscoring some skepticism around DeepSeek’s claims regarding its models’ capabilities, their total cost, and its reliance on older chips.
Hammer and tongs
DeepSeek is the latest example of a Chinese firm disrupting Western rivals with a lower-cost product, which has become something of a template or playbook.
For example, with the help of cheap state financing and the benefits of vertically integrated supply chains, Chinese companies have flooded the markets for commodities such as nickel, lithium, graphite, cobalt, and copper, pushing down prices and forcing some Western rivals out of business.
US, European, and Australian companies have struggled to be financially viable when prices are so low — especially as they face stricter regulations and steeper labor costs than their Chinese rivals — Hani Abuagla, a senior market analyst at XTB MENA, told Business Insider.
Rock-bottom prices also discourage Western companies from making new investments, and Chinese firms have struck supply deals in resource-rich regions of Africa and South America that keep out foreign competition, he said.
China’s “ability to scale production rapidly often catches other regions off guard, leading to periods of oversupply,” William Adams, the head of base metals and battery research at Fastmarkets, told BI.
“This oversupply creates challenges for new projects, particularly in the West, where companies are pressured by short-term financial goals like quarterly earnings and cash flow,” Adams said. “In contrast, Chinese firms prioritize long-term planning and benefit from easier access to financing, facilitated by state-owned or state-controlled banks.”
Canadian politician Chrystia Freeland said last year, when she was deputy prime minister, that China was flooding the global market with nickel, rare earth metals, and other commodities. She said it was “our belief that that behavior can be intentional, can be happening with the purpose of driving companies in our country, in those of our allies, out of business.”
“The best illustration of China’s playbook in action is in the field of critical materials, like rare earths,” Steve Hanke, a professor of applied economics at Johns Hopkins University, told BI.
China dominates worldwide production and processing of critical materials because it’s made targeted investments in industrial projects and education, and provided state-backed subsidies, said the veteran currency and commodity trader and former economic advisor to Ronald Reagan.
Beijing has prioritized its rare earth industry since the 1970s, closely controlling the sector and restricting foreign investments in the sector. China also prioritized education in relevant fields that Hanke dubs the “3Ms”: mining and mineral engineering, metallurgical engineering, and materials science and engineering.
US universities account for 80% of the top 20 universities globally, but are “nowhere to be found in mining and mineral science,” Hanke said. Meanwhile, Chinese universities account for 70% of the top 20 universities in the first two specialties and 30% of the third, he said.
Going electric
China’s AI approach mirrors its strategy to dominate the global electric vehicle market.
“DeepSeek’s low-cost model is similar to China’s strength in offering an alternative that costs way less but only slightly less powerful, just like in electric vehicles,” Phelix Lee, an equity analyst at Morningstar, told BI.
China spent over a decade pouring an estimated $230 billion into electric vehicle incentives and home-grown startups, an enormous spending spree that culminated with the explosive growth of the nation’s EV industry over the past few years.
The Asian superpower’s EV giants such as BYD have utilized their high levels of vertical integration — producing everything but the tires and windows in-house on some vehicles — and the country’s effective stranglehold over the global supply chain for EV batteries to sell their electric vehicles for far cheaper than anywhere else.
Meanwhile, China’s deep talent pool of software engineers and the entry of tech companies like Xiaomi into the market has seen local companies challenge their Western rivals in software and autonomous driving, with even Ford CEO Jim Farley being wowed by Xiaomi’s SU7.
China made the strategic decision that its carmakers wouldn’t be able to catch up with the best foreign rivals, and opted to develop electric vehicles instead, Duncan Wrigley, chief China+ economist at Pantheon Macroeconomics, told BI.
“They called it a leapfrog strategy, but it took almost two decades,” he said. “Firms like BYD did much of the heavy lifting like developing the technology and squeezing down costs, but with important state help to build the market through purchase subsidies and promoting charging stations.”
Making waves everywhere
China has employed similar strategies to wrestle market share from Western companies in other industries.
Shein and Temu have upturned the fast-fashion and e-commerce industries by competing largely on price, disrupting the likes of Zara, H&M, Amazon, and eBay.
Moreover, Xiaomi has increased its share of the global smartphone market from about 2% in 2013 to about 13% last year, Statista data shows. Domestic rivals Vivo and Transsion also have also near-8% shares apiece. Apple remains the leader with a 20%-plus market share, but has lost ground in China to local players in recent months.
Reigniting the AI race
It’s unclear just how disruptive DeepSeek will be, but it’s certainly left America’s AI industry reeling and raised big questions about how the technology will advance from here.
The US may have set itself up for disruption by seeking to constrain China’s access to the latest chips. Hanke told BI that DeepSeek showed “sanctions rarely work, and often backfire.”
“The US attempted to hamstring China’s AI progress by imposing sanctions on graphics cards. Rather than slowing innovation, US sanctions have incentivized Chinese companies like DeepSeek to innovate and create what is now a much more effective system,” he said.
However, it may have been inevitable that AI would proliferate, Ian Bremmer, the president and founder of Eurasia Group, told BI.
“Breakthroughs … will inevitably diffuse globally, with nations like China able to replicate and innovate on similar technologies in months,” he said.
