DeepSeek: The Low-Cost AI Model Sweeping China and Reshaping Business

DeepSeek: The Low-Cost AI Model Sweeping China and Reshaping BusinessChinese businesses are rapidly adopting DeepSeek's latest generation of AI models at an unprecedented scale, dramatically reshaping the country's commercial landscape. Founded in 2023, DeepSeek's R1 model, with its low-cost inference capabilities, has garnered significant global attention, particularly highlighted during the January 27th global tech stock sell-off

DeepSeek: The Low-Cost AI Model Sweeping China and Reshaping Business

Chinese businesses are rapidly adopting DeepSeek's latest generation of AI models at an unprecedented scale, dramatically reshaping the country's commercial landscape. Founded in 2023, DeepSeek's R1 model, with its low-cost inference capabilities, has garnered significant global attention, particularly highlighted during the January 27th global tech stock sell-off. This attention is not accidental; it stems from the model's unique advantages and China's massive demand for AI technology.

Within weeks, DeepSeek attracted numerous industry giants and startups. Eight automakers (including BYD), at least nine financial securities companies, three major telecom operators, and smartphone brand Honor, among others, have integrated DeepSeek's model. Cloud computing giants like Alibaba, Huawei, Tencent, and Baidu also offer access to DeepSeek's latest model to their clients. Sun Wei, Chief AI Analyst at Counterpoint Research, notes the adoption speed, scale of business integration, and breadth of industries covered are unprecedented, generating significant societal and economic impact. This is reflected in the Chinese stock market, where AI-related stocks have risen 15% since the beginning of the year, outperforming the MSCI China Index by 9 percentage points, showcasing market optimism towards DeepSeek and the broader AI sector.

DeepSeek's success partly owes to its precise launch timing. The announcement of the R1 model's low-cost inference capabilities on January 20th, just before the January 27th global tech sell-off, significantly boosted its visibility. Zhang Wenhao, CEO of consumer marketing consultancy Doodod, believes this led to a deeper understanding of AI and its impact in less-developed regions of China, previously a topic primarily confined to major cities. He calls it a "massive market education," believing it will propel ecosystem growth. Doodod, itself a DeepSeek user, began exploring DeepSeek's products in late 2024 and significantly increased usage after the R1 launch in late January.

DeepSeek's core competitive advantage lies in its open-source architecture and on-premise deployment. Businesses and developers can download the source code and customize it, a stark contrast to OpenAI's ChatGPT. ChatGPT isn't officially available in mainland China; users need an overseas phone number and payment methods from countries like the US. DeepSeek's significantly lower cost dramatically reduces the barrier to entry for Chinese businesses.

James Tong, CEO of enterprise software company Movitech, states that DeepSeek has redefined perceptions of AI models, shattering the notion that such technologies are solely for large corporations and prohibitively expensive to deploy. Movitech integrated early versions of DeepSeek in Q4 2024, contributing to a roughly 25% year-over-year sales increase. They plan to launch a new DeepSeek-integrated application by the end of March to further enhance customer decision-making.

Recently, numerous videos on Chinese social media demonstrated running a local version of DeepSeek on Apple Mac minis. This further lowers the barrier to entry and boosts hardware sales. WPIC data shows a significant year-over-year increase in online sales of Apple Mac minis in China between November and January, with JD.com reporting approximately 20,200 units sold in January, up from 19,400 in December and 12,250 in November.

Kim Lee, Senior Asia Analyst at the Economist Intelligence Unit (EIU), points out that DeepSeek's affordability is forcing other expensive AI models to lower their prices, making the technology accessible to more businesses. Open-source models will facilitate localized AI development for financial, banking, and healthcare companies constrained by China's strict data protection rules. While immediate widespread commercial applications are unlikely in the short term, he believes DeepSeek will accelerate the commoditization of AI.

Government support also fuels DeepSeek's rapid growth. The National Supercomputing Network announced that eligible companies and individuals can access DeepSeek for free for three months with computing power subsidies. Marvin Yan, an adjunct professor at NYU School of Law, likens this to the US Trump administration's "Project Star Gate," suggesting it has the potential for "faster expansion."

However, DeepSeek's success doesn't mean it will become the sole AI provider for Chinese businesses. Developers in the US and China are constantly releasing new models, and businesses explore various options. Movitech, for instance, also uses Alibaba's QwenAI model. The market demands cost-effectiveness and optimal results; DeepSeek is one among many choices.

Shu Weibing, Partner and COO of HangHangAI, a company developing AI solutions, says they use multiple models, from Baidu to Kimi to ByteDance's Doubao, ultimately favoring DeepSeek. He believes small businesses and those integrating AI with hardware will benefit more from generative AI, whereas large platforms focus more on efficiency improvements rather than creating new consumer services.

Despite falling AI model prices, Fang Qi, Senior Analyst at Gartner, suggests that SMEs might remain on the sidelines due to the relatively high cost of full-scale AI deployment (including computing resources and customization). However, Gartner predicts that the average cost of using generative AI models will fall to less than 1% of the current cost by 2027. By 2029, 60% of Chinese businesses will integrate AI into their core products and services, becoming a major driver of revenue growth. DeepSeek's rise is just a snapshot of China's booming AI market, promising further innovation and opportunities. In the face of US restrictions on high-end semiconductor exports, DeepSeek's success also bolsters confidence in China's path toward independent AI development.