How China’s AI Power Threatens Silicon Valley

SPEAKER_1 (0:00)

SailPoint Adaptive Identity, the foundation for enterprise security and trust.

Luke Vargas (0:09)

Hey, What's News listeners, it's Sunday, January 18th. I'm Luke Vargas for the Wall Street Journal, and this is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to explain what's happening in our world. On today's show, one year ago, Chinese-made AI model DeepSeek shocked the world. Earth-shattering developments in the AI space.

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DeepSeek said its chat bot was created with less than $6 million.

Josh Chin (0:38)

The app has become the most downloaded free app in the US.

SPEAKER_1 (0:41)

Technology shares on Wall Street have fallen sharply.

Josh Chin (0:44)

Mind-blowing, and it is shaking this entire industry.

Luke Vargas (0:48)

Since then, China's AI prowess has only grown in ways that could change global tech norms, challenge Silicon Valley's pricing power, and become a bone of contention in the US-China trade war. This week, China's AI strategy and what it means for the world. Let's get right to it. Joining me to unpack China's approach to AI and consider the economic and geopolitical impacts of its growing adoption, I'm joined by a pair of great guests. First off, Tatia Bolkvadze is a technology analyst at Oxford Analytica, and Josh Chin is the Wall Street Journal's senior global correspondent in Asia. Josh, in a nutshell, what's China's AI strategy?

Josh Chin (1:30)

China's AI strategy, as opposed to the US AI strategy, China's is much more state-driven. Things really picked up in early 2005 People remember the unveiling of DeepSeek's big frontier model called R1, which was basically nearly as powerful as the top models from Google, OpenAI, Anthropic, and it produced much more cheaply. This was such a surprise to some people in the US and really started to wake people up to the potential of Chinese AI, but also to leaders in Beijing. It was at that moment that the Chinese Communist Party really started to feel some hope and some confidence that they could compete, and that unleashed a whole geyser of government support.

Luke Vargas (2:13)

Tatia, DeepSeek is still very much around, but there's a different case study in the form of an AI model suite from Chinese company Alibaba that's called Qwen that you and your colleagues have been drawing attention to lately, that showcases sort of another element of China's AI strategy. Tell us about that.

Tatia Bolkvadze (2:28)

Right. So, Qwen did not get as much media attention in the West as DeepSeek, and some of the other kind of smaller Chinese AI models did in the beginning. Qwen was launched in 2023 for the first time, but this sort of DeepSeek moment really forced Alibaba to step up innovation and increase funding in AI. So, Qwen managed to get pretty significant global footing over the past year. It has been downloaded more than 600 million times. It's been used pretty widely internationally, not just within China. Its customers now count companies like Airbnb. And also, last December, Qwen became the most downloaded open source AI model. So, beyond just sort of showcasing Alibaba's success in this domain, the success of Qwen and DeepSeek and this group of other Chinese open source AI models is really showing that the strategy of making models cheap and freely available is working for Beijing.

Luke Vargas (3:27)

You mentioned adoption in the West. The US venture capitalist Martin Cassata was quoted in The Economist saying 80% of US entrepreneurs that he's coming across are using Chinese-made AI models. Josh, are we getting kind of a Huawei 5G redo here, where this very alluring technology gets the world to sign in to bigger Chinese systems?

Josh Chin (3:48)

Yeah, that's definitely a comparison people have made. When 5G was being developed, the US actually really fought hard to keep Huawei, which is China's big telecom equipment manufacturer, from installing 5G equipment in the developed world. But that didn't actually keep Huawei from dominating globally. And actually, we're now at a point where Huawei owns many of the essential patents for 5G and has built out networks throughout the developing world. That is a success story that Beijing is constantly looking to replicate. And you are certainly starting to see Chinese AI models being adopted around the world because they're so cheap.

Tatia Bolkvadze (4:24)

Right, absolutely. I have to agree with Josh here. And I think it's important to note also that Huawei's previous success in the Global South is also paving the way for Chinese AI models as well. Because if you look at Huawei's phone adoption in the Global South, that's enabling the adoption of Chinese AI models like DeepSeek because DeepSeek is the default AI chatbot on Huawei phones. So we've seen a very rapid adoption in countries like Iran, Ethiopia, Niger, and others. But also the open source strategy that we mentioned before, China is using this as a way to advance its image as the champion of the developing world. It's painting open source strategy as a way to democratize access to AI. At the 2024 G20 Summit, President Xi famously noted that AI should not become a game of rich countries. And since then, Beijing has really stepped up convening international conferences, which are catered specifically to the Global South. And you see a lot of the members here entering into partnerships with Chinese tech and AI firms, adopting their AI models, which are again, open source. And these countries are later able to sort of develop their own national models off of Chinese products.