Chinese AI-tech breakthrough shatters silicon valley’s illusions: Catherine Thorbecke

Key topics.DeepSeek's AI leap blindsides US tech elite, defying export controls.US biases fuel underestimation of China's innovation capabilities.China's tech talent and fierce competition drive global AI advances..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..The seventh BizNews Conference, BNC#7, is to be held in Hermanus from March 11 to 13, 2025. The 2025 BizNews Conference is designed to provide an excellent opportunity for members of the BizNews community to interact directly with the keynote speakers, old (and new) friends from previous BNC events – and to interact with members of the BizNews team. Register for BNC#7 here..If you prefer WhatsApp for updates, sign up to the BizNews channel here..By Catherine Thorbecke___STEADY_PAYWALL___.DeepSeek didn't come out of nowhere. But it seemed to catch Silicon Valley and global investors by surprise this week, to the tune of billions of dollars in stock market value..The startup released its latest product on January 20, but it has been around since 2023, and quietly rolled out impressive AI models last year. So why did it seem to catch powerful US tech billionaires entirely off guard?.The DeepSeek shock exposes an uncomfortable truth: American tech exceptionalism, and the xenophobia that underpins it, mean the broligarchy will keep being surprised..Silicon Valley has no shortage of innovators, or inflated egos. US tech leaders paint themselves as visionaries who can predict future trends decades in advance. Investors reward them handsomely for this, often whether their ideas play out or not. But there's an insidious, insular mindset baked into American society that leads its tech elite to believe they're the only ones who can lead the charge..DeepSeek upended this narrative with a double-whammy: It not only proved AI breakthroughs could happen at a fraction of the cost, but also despite the web of export controls aimed at holding China back. Policymakers have long thought they're aiding American innovation by enacting these measures, but haven't always foreseen the unintended consequences this could spur. With DeepSeek, this meant forcing engineers to do more with less. And more broadly, it has spurred Chinese authorities to double down on homegrown chip manufacturing, bringing potential longer-term ramifications. .There are other factors that play a role in America's huge blind spots when it comes to China: A language barrier, separate social media ecosystems, and a shrinking number of foreign reporters based in the country limit US visibility into some of the most exciting aspects of an innovative society. DeepSeek's earlier models easily fell through the cracks in this environment. And unlike those in the US, Chinese entrepreneurs are incentivized to stay out of the spotlight in the wake of a government crackdown on tech power. The result is a dichotomy where the US tech elites get prime seats at the presidential inauguration and have become household names, while the world knows very little about Liang Wenfeng, the founder of DeepSeek. .And so much coverage of China's tech sector puts an outsized focus on geopolitical rivalry, or the role of President Xi Jinping's authoritarian policies in industrial progress. Some of this is inevitable for a US audience, especially when loud voices in Washington view any Chinese tech breakthroughs as a potential threat to democratic ideals. .Whether or not they're correct, this vantage point misses the more than one billion Chinese people, who are often innovating and driving technology despite their government, not because of it. Sheer market size alone makes the scale of China's tech industry enormous and local competition fierce. .These individuals are the backbone of China's tech ecosystem. DeepSeek was spun out of a hedge fund, not one of the tech giants often associated with Beijing's support. It is staffed mostly by young and ambitious engineers who didn't have a lot of work experience — similar to other AI startups in the country, including the so-called "Little Dragons." Nearly half of the world's top AI talent comes from China (and US policies haven't always done a good job of attracting them). It's also no secret that Chinese tech talent, for better or worse, is outworking international counterparts; this sector birthed the infamous "996" schedule of working 12 hours a day, six days a week..Read more: 🔒 Softbank eyes record $25bn investment in OpenAI.There's an entrenched bias that China just copies. It is frustrating to see some in the West choose to perpetuate this and write off DeepSeek as more of the same after Microsoft Corp. said it was looking into whether the start-up potentially used unauthorized data output from OpenAI to train its models. It reeked of irony, given OpenAI's models trained off of thousands of works of writing and art scraped from the internet. The diversion showed how easily many still can't possibly accept the idea that Chinese people are capable of genuine innovation. .If anything, we've seen in recent years how Silicon Valley has had to pivot to roll out copycats of Chinese tech products. ByteDance Ltd.'s TikTok shook up the global social media ecosystem with its revolutionary algorithm and app, forcing US tech giants to come up with imitations to stay competitive..A few weeks ago, I wrote about another Chinese app that seemed to take the West by surprise as swarms of TikTok users, worried about a ban, fled to Red Note, or Xiaohongshu. Many of these US users were turning to the platform in protest, but it's more than that. The product was just good: It had a similarly addictive recommendation algorithm to TikTok coupled with a powerful search engine. Scrolling through Red Note and then logging onto Meta Platform Inc.'s Facebook and Instagram made the latter two look years behind..Political realities from Beijing to Washington squeeze China's tech sector from both sides. Heavy-handed regulation and censorship at home have kneecapped the ambitions of many entrepreneurs. And US suspicions which have led to the campaign to ban TikTok cast a shadow on many firms' overseas growth potential. This all plays a major role in how investors value Chinese tech companies compared to their US counterparts..But this hasn't stamped out the creativity of tech workers. DeepSeek is the latest in a spate of breakthroughs from China to shock the US. It won't be the last. The more the West refuses to tear down its own barriers to understanding China, the more it will be caught off guard in the future. .Read also:.🔒 Zuckerberg predicts 2025 breakthrough for Meta's AI🔒 DeepSeek vs Nvidia: Can Blackwell reclaim the AI lead?Nvidia's stock drop unravels a Wall Street mystery: Nir Kaissar.© 2025 Bloomberg L.P.

Chinese AI-tech breakthrough shatters silicon valley’s illusions: Catherine Thorbecke

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