Chinese AI Is Spooking Silicon Valley

**SPEAKER_1** (0:04)
Live from New York, it's The Journal.

**Ryan Knutson** (0:06)
That's right, Jess and I are back with another live show in New York City. This time on Wednesday, September 9th.

**SPEAKER_3** (0:12)
We're going to be at City Winery for an evening of sharp reporting, insider conversation, and special guests.

**Ryan Knutson** (0:18)
And probably wine?

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I hope so. Either way, you won't want to miss it.

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Tickets are on sale now. Check out the link in our show notes.
China has made some big advancements in AI recently.

**SPEAKER_5** (0:38)
New breakthroughs in powerful, low-cost Chinese AI models are sending shockwaves through Washington and Silicon Valley.

**SPEAKER_6** (0:45)
The latest Chinese offering seen as a credible challenge.

**SPEAKER_7** (0:49)
It is no longer a given that the US Frontier Labs have a safe lead in AI.

**Amrith Ramkumar** (0:54)
Big US AI companies are alarmed by this.

**Ryan Knutson** (0:57)
Our colleague Amrith Ramkumar covers tech policy in AI.

**Amrith Ramkumar** (1:00)
The view was essentially that the US has a decent size lead, you could say six to nine months, a lot of people argue, over China and other countries.

**Ryan Knutson** (1:10)
These models are made by companies in China like Alibaba, ZAI, and DeepSeek.

**Amrith Ramkumar** (1:15)
The most recent model that has everyone's attention is called Kimi K3.
It was made by a company called Moonshot AI, and it's basically been shown in some benchmarks to be getting close to advanced US capabilities. And that's what turned a lot of heads.

**Ryan Knutson** (1:32)
It's not just that these models are good, they're also way cheaper than American AI models from companies like OpenAI and Anthropic.

**Amrith Ramkumar** (1:40)
These things cost a fraction of what companies are currently paying to use Anthropic's top products and OpenAI's top products. And especially at big companies with a large number of employees, they're telling them to use AI as much as possible, but the bills are just racking up and they're quite insane.

**Ryan Knutson** (1:56)
And these new models are really attractive to a lot of US companies.

**Amrith Ramkumar** (1:59)
We've written a lot about how executives are struggling with that, and finance departments are sort of fretting. It's millions and millions or tens of millions of dollars spent on AI compute. If you can cut that bill in half or 75 percent and get something close to the same performance, I mean, that's a no-brainer for a lot of executives.

**Ryan Knutson** (2:18)
But when it comes to the US companies that make AI products like OpenAI and Anthropic, they have a lot to be worried about. Some AI researchers and analysts have questioned whether this could be the beginning of the end of America's dominance in AI race.

**Amrith Ramkumar** (2:33)
You have Anthropic and OpenAI barreling toward IPOs with valuations around a trillion dollars or other really high figures and the notion that China could come out with more products to undercut those businesses. It's really scary for a lot of people.

**Ryan Knutson** (2:50)
Welcome to The Journal, our show about money, business and power. I'm Ryan Knutson. It's Tuesday, July 28th.
Coming up on the show, Who's Afraid of Chinese AI?

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**Ryan Knutson** (4:21)
All right. So these new Chinese AI models are much cheaper and have apparently gotten a lot better. So let's talk about how they did that. Starting with, how have they gotten so much better?

**Amrith Ramkumar** (4:32)
China has been thought to be several months to a year behind, and one way they've been trying to catch up is this technique called distillation, where you essentially train off another company's AI models.

**Ryan Knutson** (4:42)
China does an enormous amount of its own innovation and research on AI.
But some Chinese companies have also been accused of distilling US models, basically studying how they respond to prompts and then working backward. Kind of like trying to reverse engineer all the secret ingredients in a can of coke.