Last week, a Chinese artificial intelligence startup’s chatbot, DeepSeek, surged to become the most downloaded free app on Apple’s US App Store, displacing OpenAI’s ChatGPT. The rise of DeepSeek hammered AI-linked stocks and wiped out close to a trillion dollars in market capitalisation of companies such as Nvidia, according to an ETOnline report. What truly rattled the industry was DeepSeek’s claim that it developed its latest model, the R1, at a fraction of the cost that major companies are investing in AI development, primarily on expensive Nvidia chips and software.
DeepSeek comes close on the heels of China unveiling a new iron-making technology last month that can lead to a 3,600-fold or more increase in the speed of iron-making. It can improve the energy-use efficiency of China’s steel industry by more than one-third. A few weeks earlier, it had stunned the world with a new stealth fighter jet, believed to be a sixth generation model, a big achievement for a country considered a laggard in aviation.
Also recently, China had achieved a significant milestone in satellite-to-ground laser communication while reaching a data transmission rate of 100 gigabits per second (Gbps), getting ahead of Elon Musk’s Starlink in the race for advanced satellite communication technologies.
The spate of technological announcements from China, and the latest DeepSeek have sent shockwaves in the US tech sector. The critical concern is that should tech giants continue to pour hundreds of billions of dollars into AI investment when a Chinese company can apparently produce a comparable model so economically?
Elon Musk, who has invested heavily in Nvidia chips for his company xAI, suspects DeepSeek of secretly accessing banned H100 chips — an accusation also made by the CEO of ScaleAI, a prominent Silicon Valley startup backed by Amazon and Meta.
DeepSeek, which has unsettled Silicon Valley as well as the Donald Trump government, is a cheap copy of an American invention, something China has come to excel in. But DeepSeek is not another notorious Chinese knock-off. It poses a challenge to to Silicon Valley with its efficiency. From fake Mercedes-Benz built by Geely Motors to DeepSeek, China has evolved from a copycat to an innovator, worrying the West with its advances in technology in different fields — from iron-making to AI.
How China evolved from a copycat to an innovator
Not long back, China was synonymous with low-quality copycats. You could find in China knock-offs of most Western products, from Nokia mobile phone to Mercedes-Benz. As it got more deeply integrated into Western value chains, becoming the factory of the world, it also started pilfering Western technology at an industrial scale. With state support which included deep spying in the West as well as large-scale funding at home, China was able put behind its past image of a producer of low-quality, cheap and counterfeit goods. But there was more at work besides stealing and copying western technology and technology transfers from Western companies producing in China to their domestic partners.
The very imitation in which China excelled laid the ground for innovation more than a decade ago.
“Companies like Alibaba, Tencent and Xiaomi began by emulating Western models,” wrote Vivek Wadhwa, CEO, Vionix Biosciences, for ET last year. “But they soon adapted these ideas to suit their local markets, innovating in ways that their Western counterparts hadn’t. Take Tencent’s WeChat. Originally inspired by WhatsApp and other messaging platforms, WeChat quickly evolved into something far more comprehensive and transformative. It became a ‘super app’, offering services that span from messaging and social networking to payments, ecommerce and even government services. Today, WeChat is not just a Chinese success story but a model of innovation that other companies worldwide like Meta, X, Tata Group and Grab are looking to replicate.”
“This strategy is particularly effective in regions where markets and consumer behaviours differ significantly from those in the West. By copying a proven concept and then localising and expanding upon it, companies can create products that are more finely tuned to their specific markets. This process often leads to innovations that go beyond the original idea, offering features and services that the ‘originators’ never considered,” Wadhwa said.
A huge number of students opting to study STEM subjects, building a formidable local talent base, also helped the Chinese state that was trying to foster innovation with financial, strategic, corporate and regulatory efforts.
