Last week, Donald Trump dominated our news feeds, for instance, with a huge investment of 500 billion US dollars for AI research. Just days later, DeepSeek is already making his Stargate plans seem outdated. The Chinese AI start-up is on everyone’s lips. But how was this success even possible?
Apart from the unique aspects of the Chinese tech ecosystem, the country also had to abandon one dogma, says tech expert Karen Hao. Namely, AI development can only progress if there is more data, larger data centers, and more energy. An idea that has had harsh critics before. However, due to the US high-tech sanctions, the Chinese tech scene inevitably had to find a solution. “DeepSeek had an existential drive to innovate and the talent to circumvent the trade barriers.” Read more in the analysis by Fabian Peltsch.
Just a few weeks before the German parliamentary elections, Friedrich Merz, election frontrunner for the Christian Democratic Union (CDU), sent a clear signal that trust in the People’s Republic as a partner has clearly waned. Merz could not have formulated his call for consistent de-risking of the German economy more clearly: China is part of an “axis of autocracies” that does not abide by “Western rule of law standards.” He rejected state investment guarantees.
“These are pithy words that create uncertainty,” says Jürgen Matthes from the Cologne Institute for Economic Research. However, he agrees that companies must bear the risk of investing in China. Marcel Grzanna analyzes the growing estrangement between China and Germany.
Given the sheer intensity of such news, it’s easy to forget that China is celebrating the Spring Festival today. However, as long as you, dear readers, do not live in China yourself, you will probably notice very little change in your Wednesday routine. Nevertheless, we wish you a pleasant start to the Year of the Snake.
AI luminary Lee Kai-fu feels vindicated by DeepSeek’s success, he writes on X. He said that he had predicted years ago in his bestseller “AI Superpowers” that the US would be the first to achieve scientific breakthroughs in the field of artificial intelligence, but that China would be better and faster in its application – as this would require engineering skills that are geared towards everyday use and are therefore efficient and cost-effective.
DeepSeek, a Hangzhou start-up that was only founded in 2023, has now apparently managed to rival the previously leading AI platforms from Google Gemini and OpenAI at a fraction of the cost and chip resources thanks to such engineering skills. This is worrying not only investors, who are now selling their tech stocks in droves, but also the US government, which has just made the largest tech investment in its history with Stargate – the reportedly planned 500 billion USD for data centers and other AI technology far exceeds the total cost of the Apollo space program.
DeepSeek now leaves lofty plans such as Stargate in the dust. How could this happen? “The company shows that innovation comes from having to work with limited resources,” award-winning tech journalist Karen Hao from Hong Kong told Table.Briefings. Although she has been writing and lecturing about AI developments in China for years, she did not anticipate the speed with which DeepSeek overcame hurdles she thought were insurmountable. However, she says that some trends have been apparent for some time.
Due to the US high-tech sanctions, the Chinese tech scene “inevitably” had to break with the Western dogma that AI models had to be aggressively scaled to make progress. The idea that only more data, data centers, and energy could guarantee the pace of progress was harshly criticized worldwide. However, the Chinese industry had to do without a steady supply of chips from companies such as Nvidia, which have been subject to US export controls since October 2023. “DeepSeek had an existential drive to innovate and the talent to circumvent trade barriers.”
Hao cited another unique aspect of the Chinese AI ecosystem: China has invested massively in research and education over the past ten years. Around half of the world’s AI graduates come from the People’s Republic. “It used to be that the best and brightest Chinese minds wanted to work in the US. But for various reasons, including the strict immigration restrictions, many more researchers now stay in China and work for Chinese companies,” says Hao. Over time, this has created a “critical mass of incredibly talented researchers” working in their own country.
Company founder Liang Wenfeng, born in 1985, is also one of these clever minds. He has long been hailed as a genius in China. In recent days, however, his success with DeepSeek has almost elevated him to the status of a saint. Liang initially founded DeepSeek in 2023 as a side project. Until then, the now 40-year-old was the successful operator of the hedge fund High-Flyer, which provided financial market analyses and made Liang a billionaire even before DeepSeek. This means that his company is not directly dependent on external investors or commercial pressure. This has also given DeepSeek more room to experiment. However, such leeway is just as unusual in China’s highly competitive tech landscape as in the United States.
DeepSeek reportedly employs no more than 200 people. And the understatement doesn’t stop there. A video making the rounds on social media shows the founder speaking with China’s Premier Li Qiang. It’s hard to believe that this modest and boyish-looking entrepreneur is giving the tech world a run for its money. After all, he looks so much like a computer science student who has been asked into the headmaster’s office to receive a commendation.
Companies like OpenAI now not only have a lot of explaining to do, they are also facing major economic challenges. “With DeepSeek, the pressure is likely to become even greater,” believes Hao. “Nevertheless, US companies will continue to experiment in familiar ways.” However, she believes that in the long term, companies like Google will have to abandon the old idea that AI development can be driven forward simply by using more resources. “But I’m not convinced this will happen under the current administration.”
However, Hao is certain that one thing will happen in the US: DeepSeek will be accused of plagiarism and, on top of that, of posing a security risk – two accusations that need to be differentiated, she says. Ultimately, DeepSeek does what companies like Google, Anthropic and OpenAI do: “They implement, optimize and combine existing research ideas instead of creating fundamental breakthroughs.” However, DeepSeek has combined and optimized various existing methods in a way that has dramatically increased efficiency. And no other company has managed to do this before.
That DeepSeek is subject to state censorship is also undeniable. “The model’s original version moderates content in accordance with Chinese law. This means that this model does not talk about Tiananmen Square and similar things,” says Hao. DeepSeek’s privacy policy also points out that collected user data is stored on servers in China and is subject to local laws. However, since DeepSeek is open source, unlike OpenAI, for example, researchers and developers outside China can download the model, remove or customize the moderation filters and modify the model to their liking.
And yet, DeepSeek is automatically more Chinese than the competition because it has learned with more Chinese datasets. A Chinese developer will inherently be more familiar with certain Chinese datasets than American companies. For example, one user reported that he could get much more detailed results on Chinese literature and philosophy from queries on DeepSeek than anywhere else.
As a former tech employee, Karen Hao hopes that DeepSeek’s success will foster the realization that investing too much in a start-up can harm its innovative capability.
“When a start-up receives too much capital, two things die: The necessary drive to truly innovate and improve the technology, and the urge to find a sustainable business model.” DeepSeek’s success has made the cracks in the existing model even more visible.
The long-standing claim of unconditional friendship between Germany and the People’s Republic of China is increasingly developing into a purely pragmatic relationship of convenience. Friedrich Merz, election frontrunner for the Christian Democratic Union, recently warned German companies about the future.
Merz recently referred to investments in China as a “major risk.” The CDU leader emphasized: “And under no circumstances, please, come to the state, to the Federal Government of the Federal Republic of Germany, to help you in such an economic situation.” This not only sounds sobering, but is also an expression of the disillusionment that has gripped Germany. Especially considering that German automotive companies and others have long since maneuvered themselves into high dependency on the Chinese market.
Ten years ago, it would have been unthinkable for a German politician to warn of a China risk. Be in China at all costs – that was the mantra for happiness. Off to the Eldorado of the 21st century. For many years, the state happily handed out guarantees worth billions to companies to share their risks and encourage them to expand into China and surrender to the conditions. The contract for the construction of a VW factory in Xinjiang signed in front of German Chancellor Angela Merkel in 2012 is emblematic of this.
However, state investment guarantees could very soon be history – at least when the money is supposed to flow into the People’s Republic. Over two years ago, the Federal Ministry for Economic Affairs and Climate Action was already considering plans in this direction, but initially decided to merely raise the fees for state guarantees. Economy Minister Robert Habeck even rejected loan guarantees for Volkswagen, citing Chinese human rights violations. The German government’s China strategy also specifically mentioned the “risks on the Chinese market” (4.4).
Just a few weeks before the elections in Germany, Merz has now sent a clear signal that the CDU is the next political party to significantly lose trust in the People’s Republic as a partner. Merz could not have formulated his demand for consistent de-risking of the German economy more clearly. He warned that China is part of an “axis of autocracies” that did not abide by “Western rule of law standards.”
“These are pithy words that create uncertainty. Managers, owners and investors should weigh up their risks even more carefully than before,” says Jürgen Matthes from the Cologne Institute for Economic Research (IW). He says that although the state has no fundamental say in where and when a company plans to invest, the unequivocal and “correct announcement” that companies must bear their China risk themselves if the CDU/CSU are part of the government is “impactful.”
“We hope that the German side will view China’s development objectively and rationally and uphold the tradition of China-Germany friendship,” said the Chinese foreign office. It said German politicians were welcome to come to the People’s Republic to experience the “true China.”
However, there is mounting disbelief in Germany that there is more to such Chinese statements than platitudes. They have been repeated for years, but are not enough to halt the loss of trust among politicians.
The process of critical reflection is a story in several chapters. IW economist Matthes describes the 2019 position paper of the Federation of German Industries (BDI) as “groundbreaking.” It highlighted dozens of problems in economic relations. The European Commission followed up with the triad, which classifies China as a rival, among other things. Reports about internment camps in Xinjiang and the escalation between the state and civil society in Hong Kong accelerated the estrangement.
Covid has done its part. “The coronavirus pandemic has caused reliability in cooperation with Chinese suppliers to suffer enormously, as has confidence in the Chinese sales market. Market access for German companies has been made even more difficult, the pressure to cooperate or take minority stakes and the associated outflow of expertise has been accelerated. These are all things that have also led to disillusionment among SMEs when doing business in China,” says chief economist Hans-Jürgen Völz from the German Association of Small and Medium-Sized Enterprises (BVMW).
This is why SMEs have long been diversifying their investments. Many companies are willing to bear the associated costs. “Constant product availability in the supply chain is valued more highly than the price.” For SMEs, state guarantees are not a sufficiently convincing argument for investing in China anyway. “What companies want is reciprocity – the same conditions on both sides, not in Sunday speeches, but in reality,” says Völz.
In this respect, the economist sees Merz’s remarks as a direct message to the Chinese side that Germany is no longer willing to tolerate Chinese strategies, wishes or regulations. Völz also sees this as a signal to potential coalition partners in a new German government – this is how he wants to shape relations with China, and no other way. “Because,” says Völz, “it is wrong to believe that China will become tame in matters of economic interests.”
Sinolytics is a research-based business consultancy entirely focused on China. It advises European companies on their strategic orientation and specific business activities in the People’s Republic.
Unusual dance partners: At the annual Spring Festival gala on Chinese state television, humanoid robots performed the Errenzhuan (二人转, literally: two-human rotation) side by side with human dancers – a traditional dance from the cold north-east of China. Humans and machines each twirled two red paper handkerchiefs. The humanoids obviously had well-oiled joints: They managed the feats superhumanly quickly and became the attraction of the evening on social media. The performance was devised by none other than star director Zhang Yimou. What else was there? Among other things, a guest appearance by famous video blogger Li Ziqi, praise for the Chinese military and invocations of “ethnic harmony.” And then the Year of the Dragon was over. We want to take this opportunity to wish you all the best for the Year of the Wood Snake!
Last week, Donald Trump dominated our news feeds, for instance, with a huge investment of 500 billion US dollars for AI research. Just days later, DeepSeek is already making his Stargate plans seem outdated. The Chinese AI start-up is on everyone’s lips. But how was this success even possible?
Apart from the unique aspects of the Chinese tech ecosystem, the country also had to abandon one dogma, says tech expert Karen Hao. Namely, AI development can only progress if there is more data, larger data centers, and more energy. An idea that has had harsh critics before. However, due to the US high-tech sanctions, the Chinese tech scene inevitably had to find a solution. “DeepSeek had an existential drive to innovate and the talent to circumvent the trade barriers.” Read more in the analysis by Fabian Peltsch.
Just a few weeks before the German parliamentary elections, Friedrich Merz, election frontrunner for the Christian Democratic Union (CDU), sent a clear signal that trust in the People’s Republic as a partner has clearly waned. Merz could not have formulated his call for consistent de-risking of the German economy more clearly: China is part of an “axis of autocracies” that does not abide by “Western rule of law standards.” He rejected state investment guarantees.
“These are pithy words that create uncertainty,” says Jürgen Matthes from the Cologne Institute for Economic Research. However, he agrees that companies must bear the risk of investing in China. Marcel Grzanna analyzes the growing estrangement between China and Germany.
Given the sheer intensity of such news, it’s easy to forget that China is celebrating the Spring Festival today. However, as long as you, dear readers, do not live in China yourself, you will probably notice very little change in your Wednesday routine. Nevertheless, we wish you a pleasant start to the Year of the Snake.
AI luminary Lee Kai-fu feels vindicated by DeepSeek’s success, he writes on X. He said that he had predicted years ago in his bestseller “AI Superpowers” that the US would be the first to achieve scientific breakthroughs in the field of artificial intelligence, but that China would be better and faster in its application – as this would require engineering skills that are geared towards everyday use and are therefore efficient and cost-effective.
DeepSeek, a Hangzhou start-up that was only founded in 2023, has now apparently managed to rival the previously leading AI platforms from Google Gemini and OpenAI at a fraction of the cost and chip resources thanks to such engineering skills. This is worrying not only investors, who are now selling their tech stocks in droves, but also the US government, which has just made the largest tech investment in its history with Stargate – the reportedly planned 500 billion USD for data centers and other AI technology far exceeds the total cost of the Apollo space program.
DeepSeek now leaves lofty plans such as Stargate in the dust. How could this happen? “The company shows that innovation comes from having to work with limited resources,” award-winning tech journalist Karen Hao from Hong Kong told Table.Briefings. Although she has been writing and lecturing about AI developments in China for years, she did not anticipate the speed with which DeepSeek overcame hurdles she thought were insurmountable. However, she says that some trends have been apparent for some time.
Due to the US high-tech sanctions, the Chinese tech scene “inevitably” had to break with the Western dogma that AI models had to be aggressively scaled to make progress. The idea that only more data, data centers, and energy could guarantee the pace of progress was harshly criticized worldwide. However, the Chinese industry had to do without a steady supply of chips from companies such as Nvidia, which have been subject to US export controls since October 2023. “DeepSeek had an existential drive to innovate and the talent to circumvent trade barriers.”
Hao cited another unique aspect of the Chinese AI ecosystem: China has invested massively in research and education over the past ten years. Around half of the world’s AI graduates come from the People’s Republic. “It used to be that the best and brightest Chinese minds wanted to work in the US. But for various reasons, including the strict immigration restrictions, many more researchers now stay in China and work for Chinese companies,” says Hao. Over time, this has created a “critical mass of incredibly talented researchers” working in their own country.
Company founder Liang Wenfeng, born in 1985, is also one of these clever minds. He has long been hailed as a genius in China. In recent days, however, his success with DeepSeek has almost elevated him to the status of a saint. Liang initially founded DeepSeek in 2023 as a side project. Until then, the now 40-year-old was the successful operator of the hedge fund High-Flyer, which provided financial market analyses and made Liang a billionaire even before DeepSeek. This means that his company is not directly dependent on external investors or commercial pressure. This has also given DeepSeek more room to experiment. However, such leeway is just as unusual in China’s highly competitive tech landscape as in the United States.
DeepSeek reportedly employs no more than 200 people. And the understatement doesn’t stop there. A video making the rounds on social media shows the founder speaking with China’s Premier Li Qiang. It’s hard to believe that this modest and boyish-looking entrepreneur is giving the tech world a run for its money. After all, he looks so much like a computer science student who has been asked into the headmaster’s office to receive a commendation.
Companies like OpenAI now not only have a lot of explaining to do, they are also facing major economic challenges. “With DeepSeek, the pressure is likely to become even greater,” believes Hao. “Nevertheless, US companies will continue to experiment in familiar ways.” However, she believes that in the long term, companies like Google will have to abandon the old idea that AI development can be driven forward simply by using more resources. “But I’m not convinced this will happen under the current administration.”
However, Hao is certain that one thing will happen in the US: DeepSeek will be accused of plagiarism and, on top of that, of posing a security risk – two accusations that need to be differentiated, she says. Ultimately, DeepSeek does what companies like Google, Anthropic and OpenAI do: “They implement, optimize and combine existing research ideas instead of creating fundamental breakthroughs.” However, DeepSeek has combined and optimized various existing methods in a way that has dramatically increased efficiency. And no other company has managed to do this before.
That DeepSeek is subject to state censorship is also undeniable. “The model’s original version moderates content in accordance with Chinese law. This means that this model does not talk about Tiananmen Square and similar things,” says Hao. DeepSeek’s privacy policy also points out that collected user data is stored on servers in China and is subject to local laws. However, since DeepSeek is open source, unlike OpenAI, for example, researchers and developers outside China can download the model, remove or customize the moderation filters and modify the model to their liking.
And yet, DeepSeek is automatically more Chinese than the competition because it has learned with more Chinese datasets. A Chinese developer will inherently be more familiar with certain Chinese datasets than American companies. For example, one user reported that he could get much more detailed results on Chinese literature and philosophy from queries on DeepSeek than anywhere else.
As a former tech employee, Karen Hao hopes that DeepSeek’s success will foster the realization that investing too much in a start-up can harm its innovative capability.
“When a start-up receives too much capital, two things die: The necessary drive to truly innovate and improve the technology, and the urge to find a sustainable business model.” DeepSeek’s success has made the cracks in the existing model even more visible.
The long-standing claim of unconditional friendship between Germany and the People’s Republic of China is increasingly developing into a purely pragmatic relationship of convenience. Friedrich Merz, election frontrunner for the Christian Democratic Union, recently warned German companies about the future.
Merz recently referred to investments in China as a “major risk.” The CDU leader emphasized: “And under no circumstances, please, come to the state, to the Federal Government of the Federal Republic of Germany, to help you in such an economic situation.” This not only sounds sobering, but is also an expression of the disillusionment that has gripped Germany. Especially considering that German automotive companies and others have long since maneuvered themselves into high dependency on the Chinese market.
Ten years ago, it would have been unthinkable for a German politician to warn of a China risk. Be in China at all costs – that was the mantra for happiness. Off to the Eldorado of the 21st century. For many years, the state happily handed out guarantees worth billions to companies to share their risks and encourage them to expand into China and surrender to the conditions. The contract for the construction of a VW factory in Xinjiang signed in front of German Chancellor Angela Merkel in 2012 is emblematic of this.
However, state investment guarantees could very soon be history – at least when the money is supposed to flow into the People’s Republic. Over two years ago, the Federal Ministry for Economic Affairs and Climate Action was already considering plans in this direction, but initially decided to merely raise the fees for state guarantees. Economy Minister Robert Habeck even rejected loan guarantees for Volkswagen, citing Chinese human rights violations. The German government’s China strategy also specifically mentioned the “risks on the Chinese market” (4.4).
Just a few weeks before the elections in Germany, Merz has now sent a clear signal that the CDU is the next political party to significantly lose trust in the People’s Republic as a partner. Merz could not have formulated his demand for consistent de-risking of the German economy more clearly. He warned that China is part of an “axis of autocracies” that did not abide by “Western rule of law standards.”
“These are pithy words that create uncertainty. Managers, owners and investors should weigh up their risks even more carefully than before,” says Jürgen Matthes from the Cologne Institute for Economic Research (IW). He says that although the state has no fundamental say in where and when a company plans to invest, the unequivocal and “correct announcement” that companies must bear their China risk themselves if the CDU/CSU are part of the government is “impactful.”
“We hope that the German side will view China’s development objectively and rationally and uphold the tradition of China-Germany friendship,” said the Chinese foreign office. It said German politicians were welcome to come to the People’s Republic to experience the “true China.”
However, there is mounting disbelief in Germany that there is more to such Chinese statements than platitudes. They have been repeated for years, but are not enough to halt the loss of trust among politicians.
The process of critical reflection is a story in several chapters. IW economist Matthes describes the 2019 position paper of the Federation of German Industries (BDI) as “groundbreaking.” It highlighted dozens of problems in economic relations. The European Commission followed up with the triad, which classifies China as a rival, among other things. Reports about internment camps in Xinjiang and the escalation between the state and civil society in Hong Kong accelerated the estrangement.
Covid has done its part. “The coronavirus pandemic has caused reliability in cooperation with Chinese suppliers to suffer enormously, as has confidence in the Chinese sales market. Market access for German companies has been made even more difficult, the pressure to cooperate or take minority stakes and the associated outflow of expertise has been accelerated. These are all things that have also led to disillusionment among SMEs when doing business in China,” says chief economist Hans-Jürgen Völz from the German Association of Small and Medium-Sized Enterprises (BVMW).
This is why SMEs have long been diversifying their investments. Many companies are willing to bear the associated costs. “Constant product availability in the supply chain is valued more highly than the price.” For SMEs, state guarantees are not a sufficiently convincing argument for investing in China anyway. “What companies want is reciprocity – the same conditions on both sides, not in Sunday speeches, but in reality,” says Völz.
In this respect, the economist sees Merz’s remarks as a direct message to the Chinese side that Germany is no longer willing to tolerate Chinese strategies, wishes or regulations. Völz also sees this as a signal to potential coalition partners in a new German government – this is how he wants to shape relations with China, and no other way. “Because,” says Völz, “it is wrong to believe that China will become tame in matters of economic interests.”
Sinolytics is a research-based business consultancy entirely focused on China. It advises European companies on their strategic orientation and specific business activities in the People’s Republic.
Unusual dance partners: At the annual Spring Festival gala on Chinese state television, humanoid robots performed the Errenzhuan (二人转, literally: two-human rotation) side by side with human dancers – a traditional dance from the cold north-east of China. Humans and machines each twirled two red paper handkerchiefs. The humanoids obviously had well-oiled joints: They managed the feats superhumanly quickly and became the attraction of the evening on social media. The performance was devised by none other than star director Zhang Yimou. What else was there? Among other things, a guest appearance by famous video blogger Li Ziqi, praise for the Chinese military and invocations of “ethnic harmony.” And then the Year of the Dragon was over. We want to take this opportunity to wish you all the best for the Year of the Wood Snake!
