DeepSeek and Its Implications for Opportunities and Risks in China’s AI Market

On January 20, China’s DeepSeek artificial intelligence (AI) company released its free chatbot, which is based on a large language model (LLM) that is comparable in performance to major non-Chinese LLMs such as OpenAI’s GPT-4, but at a fraction of the cost.

China has celebrated DeepSeek’s achievement. Liang Wenfeng, DeepSeek’s founder, was invited to attend the February 17 government-sponsored private enterprise symposium, which featured a speech by top Chinese leader Xi Jinping. Indeed, DeepSeek’s announcement has boosted China’s confidence and invigorated its AI market.

The Chinese government’s support of DeepSeek and AI development in general are likely to create opportunities in China for broader use of generative AI on consumer devices like smartphones, personal computers, and automobiles, which are areas where some U.S. companies already have a strong presence.

However, China’s open AI models are likely to contain significant security flaws. U.S.

organizations that attempt to employ Chinese open AI technologies are likely to be exposed to those risks, which could result in the unintended exposure of their users’ sensitive data.

In addition, negative foreign governmental reactions to DeepSeek increase the likelihood that American organizations choosing to employ Chinese open AI technologies will face regulatory scrutiny. Moreover, the intensification of competition in the Chinese AI market will likely impact the market positions of U.S. companies operating in this sector.

In this context, prior to the integration of such technologies, American entities are advised to strengthen measures to protect their sensitive data. They should also develop responses to likely regulatory scrutiny by U.S. and other governments as well as negative media reporting. Lastly, the marketing teams of U.S. companies should develop plans to strengthen their market positions in China to minimize impact to company revenue.