The launch of DeepSeek-R1 AI by Hangzhou-based High-Flyer and subsequent impact reveals a lot about the state of the People’s Republic of China (PRC) today, both good and bad.
It touches on the state of Chinese technology, innovation, intellectual property theft, sanctions busting smuggling, propaganda, geopolitics and as with everything in China, the power politics of the Chinese Communist Party (CCP).
PLEASING XI JINPING
Photo: AFP
DeepSeek’s creation is almost certainly no accident.
In 2015 CCP Secretary General Xi Jinping (習近平) launched his Made in China 2025 program intended to move China away from low-end manufacturing into an innovative technological powerhouse, with Artificial Intelligence (AI) one of the top priorities.
High-Flyer cofounder Liang Wenfeng (梁文鋒) is not only talented in technological innovation, he is also politically savvy. In spite of the name of his company, Liang has astutely kept a low profile.
The company is a hedge fund making money off of algorithmic trading.
One of two things — or a bit of both — happened leading to him founding DeepSeek in 2016. Possibly he was nervous about his wealth and the pernicious and unpredictable way the CCP regulates businesses like his and he wanted to get in the good graces of the CCP, or they approached him and said something along the lines of “nice hedge fund you got here, would be a shame if something were to happen to it.”
Liang spent billions on DeepSeek helping advance Xi’s goals.
EMBARASSING TRUMP
That Liang is deeply embedded with the CCP is demonstrated by when and how DeepSeek-R1 was launched. Launching on Donald Trump’s inauguration day was no accident.
They falsely claimed that it only cost US$6 million to train, only used open source data and did it all on older Nvidia graphics processing units (GPUs), but they correctly claimed to use much less power than comparable products like ChatGPT.
This accomplished five things for the CCP.
First, the stock market tanked, losing over a trillion dollars. Nvidia alone lost almost US$600 billion, the largest loss of stockmarket value by any company in history.
Nvidia’s stock dropped to less than US$117, and though it bounced back somewhat, as of this writing it is only slightly over US$124, so that most of the value lost remains lost. A trillion dollar punishment for the American ban on selling the most chips to China.
That Nvidia’s founder is Taiwan-born no doubt made it just that much better for the CCP.
Second, this was a shot across the bow to US President Donald Trump, on his first day back in office this business-friendly president saw so much money disappear — so much money, people. The message was loud and clear, China can play hardball and can compete with the US at the cutting edge of technology.
Third, for awhile at least it appeared to undercut the notion that the chip ban was even working. However, while DeepSeek claimed that it was using Nvidia’s lower-end H800 chips in its data center, but when you ask the chatbot whether the company is using advanced Nvidia’s H100 chips — which are banned from export to China — it answered “yes.” Oops.
Suspicions are focused on Singapore as a transshipment hub for sanctions busting for re-export to China, and Singapore police and customs authorities arrested nine people in raids on Thursday last week.
TROJAN HORSES
Fourth, while many mocked DeepSeek as “ChatCCP” the reality is many will be using it because it uses so much less product. This ensures CCP propaganda will be passed on to millions of people who may not be aware of the CCP’s intent and lack the ability to spot it.
Fifth, while the mainstream press was obsessing about DeepSeek, outside of the tech press the launch of ByteDance’s UI-TARS AI agent largely flew under the radar. This was the subject of my Thursday, Feb. 27 column “Donovan’s Deep Dives: The CCP’s dystopian AI plot to turn the world into China.”
Unfortunately that headline is accurate, not clickbait. Essentially, it is software made by the creators of TikTok that literally can take control of people’s digital devices and do anything it wants, including access to all the information, ability to install software and much more, and made it open source so that other companies can rebrand it so that people will be duped into installing it thinking it is safe, and not a Chinese product.
It is truly a terrifying product that may give control of millions of people’s lives to the CCP, so take steps to ensure that it never gets installed on your computer.
THE TECH
The number of falsehoods propagated by this company is disturbing.
They claimed it is open source, but in reality only partially. Notably, the training data is not shared.
That is because they paid for a ChatGPT account and trained their AI by distilling the answers it gave to train DeepSeek. Microsoft caught on and began an investigation last fall.
Even more damning, DeepSeek frequently self-identifies as an Open AI product or as ChatGPT. Again, oops.
That apparently violated ChatGPT’s parent Open AI’s terms of service. How that will play out legally remains to be seen.
Hackers have also found open data ports that if they know where they are, anyone could access and get user data. It is claimed this is the same method Beijing accesses TikTok user data.
The claim that they only spent US$6 million on training their model is easily debunked through open source information.
However, their claims to use much less power are true, with estimates of 20 to 40 times less than ChatGPT. Data centers use staggering amounts of processing power, which uses up massive amounts of electricity.
In the US companies such as Microsoft are re-opening nuclear power plants — including the infamous Three Mile Island plant — to power data centers.
This is a big deal in cost savings and may result in many seriously considering integrating DeepSeek for that reason alone.
Although my coding days are long in the past, in researching the subject, experts in the field explaining how they managed this were uniformly impressed.
In a non-technical nutshell, they managed to pair up bits of information with different processes, rather than having to use the entire system.
During my time in China, my job was managing the two offices of an American software outsourcing company. Most of my staff were coders, and they were very good, so I am not surprised that DeepSeek was able to innovate.
DeepSeek sought out excellent coders and treats them well, working normal eight hour days instead of the infamous “996” work culture in many companies of working from 9am to 9pm, six days a week. That gives the coders the rest and recuperation time necessary to code at the top of their game.
There is chatter that the release date for DeepSeek-R2 will be moved earlier from the original launch planned for May in order to beat OpenAi’s ChatGPT 4.5 launch. That may mean overtime, though.
VERY CHINESE
DeepSeek is emblematic of how tightly CCP politics is embedded in key industries. It also demonstrates the Chinese knack for corner-cutting, in this case by distilling OpenAI’s work.
That is also a cheap way to go about it, essentially ripping off OpenAI’s billions in spending. That, plus their genuinely smart power cutting innovations are typical of the Chinese ability to produce products at a lower price compared to competitors.
It also competitive in various benchmarks for handling different tasks, including in some cases coming out ahead.
Donovan’s Deep Dives is a regular column by Courtney Donovan Smith (石東文) who writes in-depth analysis on everything about Taiwan’s political scene and geopolitics. Donovan is also the central Taiwan correspondent at ICRT FM100 Radio News, co-publisher of Compass Magazine, co-founder Taiwan Report (report.tw) and former chair of the Taichung American Chamber of Commerce. Follow him on X: @donovan_smith.
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