Atul Aneja
THE STUNNING SUCCESS of the Chinese AI chatbot DeepSeek has left the US-led tech universe shell-shocked, fearful, and demoralised. That is not surprising. The arrogant rulers of the cyber-universe headquartered in such places as the Silicon Valley have long believed in the myth that they have the divine right to lead the global tech industry. To find young upstarts from lowly Hangzhou shattering the myth that they have been born to command cyber-space in perpetuity, is, indeed, hard to swallow.
But had the tech-titans in the West been humbler and avoided living in a self-created bubble, they would perhaps have by-passed their terrifying deer-in-the-headlights situation. So how did China achieve its Sputnik moment that has delivered such a shattering psychological blow to the high-browed collective west?
There are at least three underlying drivers that explain why the tireless neo-Confucian techies from China, made such a big splash on the hi-tech canvass by training an advanced AI chatbot at a miserly cost $5.58 million. This has hugely embarrassed the ruling tech priestly class that has pumped far larger sums to produce, from a user’s perspective, only similar products.
First, clear-eyed leaders of the People’s Republic of China (PRC) have diligently painted the big picture, detailing the time-lines for China’s rise, in which developers of AI have a pivotal, clearly defined role. The rise of AI, the key to cutting-edge Industry 4.0 that was already in focus—received a big boost in 2017 during 19th congress of the Communist Party of China (CPC). At the end of the congress, which is routinely held every five years, Chinese President Xi Jinping, delivered a seminal speech. In his marathon address, which lasted more than three hours, Xi laid out China’s grand strategy. From the ornate Great Hall of the People, the Chinese leader declared the country’s two centenary goals.
He unambiguously announced that his country’s first goal would be to eradicate absolute poverty by 2021—the year that marked the centenary of the formation in Shanghai of the CPC. That goal has already been achieved with the doubling in one decade of the Chinese GDP from its 2010 base. The second goal was even more consequential. Xi made it plain that in 2049—the year marking 100 years of the formation of the PRC—China would become a world leader, acing all spheres of human endeavour. With that the people of the country would realise their “Chinese dream.”
In order to achieve these jaw-dropping goals, the Chinese had already packed the required feedstock, including AI. During their 14th five-year plan that would end this year, Chinese planners had identified the critical role of digital economy, focusing on core industries such as big data, blockchain and AI to propel China’s digital advance.
Regarding AI, the plan focused on developing advanced algorithms, visible in the DeepSeek model, and their application in industrial manufacturing, fintech and healthcare. It also lasered on integrating AI with quantum computing. This was done with the intent of beefing computational power that was required to solve complex problems quickly. Chinese planners saw a major AI role for establishing smart cities, digital villages, improving public services and living standards of the people.
Second, the Chinese began their long march to establish a hi-tech culture and eco-system that was original, innovative, and geared to guarantee success. Here it is important to grasp the Chinese drill for developing digital technologies, including AI.
In an in insightful article that appeared in the South China Morning Post, economist Kok How Lee points to three key drivers of China’s ever- growing success.
He points out that China has leveraged its vast domestic market to achieve economies of scale, leading to inexpensive production of goods, without compromising quality. Riding on a 1.4 billion population, China has a vast consumer base allowing businesses to scale up production—a situation that other markets will find hard to replicate.
Citing the smartphone industry, Lee spotlights Chinese brands such as Huawei Technologies, Xiaomi, Oppo and Vivo. These companies focused on meeting the needs of the massive domestic market before expanding globally. “This ability to scale up domestically first provides a critical edge over international counterparts who operate in smaller markets,” Lee observes.
The article further nails China’s “user-centric” approach as a key driver for on-your-feet innovation. It points out that Chinese companies are very sensitive to user feedback, and channel it rapidly into improved products. Copious data on consumer behaviour and preferences drawn from China’s vast market, gives Chinese companies the fire power to innovate and improve products.
Finally fierce domestic competition in advanced areas, including AI has been driving breakneck innovation across China, taking the world by storm. For instance, unlike Europe, cut-throat competition for market share among electric car brands-BYD, Nio, Li Auto and Xpeng –is driving down costs and improving product quality.
“This relentless drive to outdo competitors has fostered a culture of innovation that permeates China’s tech ecosystem,” says Lee.
Third, the post-Covid situation, marked by sharper geopolitical hostility from the West, coupled with the domestic economic slowdown, significantly driven by sluggishness in traditional economy drivers including real estate and infrastructure, has forced China to seek new motors for economic success, including AI. Recently, China’s leaders exhorted industry heads to focus on the country’s tech sector in the search for new drivers of economic growth. President Xi, in a meeting, himself called for “high-level technological self-reliance and improvement” and “sound development momentum” in 2025—the years when the 14th five-year plan runs its course.
Xi authorised the business chamber All-China Federation of Industry and Commerce, to steer the private sector towards greater entrepreneurship and boosting their confidence. In order to power digital innovation, China has chosen Hangzhou, the ground-zero from where DeepSeek took wings, as a key destination of AI advancement.
Why Hangzhou?
There are several reasons for nailing Hangzhou as an AI hub. First and foremost, Hangzhou has abundant talent pool. The city can leverage several research institutions, including Zhejiang University, which has taken a head-start in AI research since 1978. The city has over 7,000 people working in the AI industry—a talent pool that naturally draws AI investors. Hangzhou has become a digital favourite also because of its tradition of local government support, exemplified by the establishment of the 5G Innovation Park there. Today, it hosts the China Artificial Intelligence Town– a dedicated area within Hangzhou Future Sci-Tech City, focusing on big data, cloud computing, IoT, and chip design. In fact, Hangzhou has designated four districts – Yuhang, Xiaoshan, Binjiang, and Xihu – as pilot areas for AI development, leveraging their resources and expertise.
Besides, the presence of Ali Baba, the e-commerce giant, has vastly added to Hangzhou’s glamour and allure, majorly reinforcing the city’s AI ecosystem. Alibaba’s initiatives include ET Brain, which has several applications in various fields such as healthcare and fintech.
Unsurprisingly, attracted by its strong AI infrastructure and digital culture, Hangzhou, besides DeepSeek, is home to companies like Rongyi.Big, Intellifusion, CloudWalk Technology, and Terminus Technologies. These firms are undertaking cutting edge research to benefit AI applications for e-commerce, video analytics, smart city solutions, and IoT integration. Other digital icons in Hangzhou include robotic dog maker Unitree and Game Science, which has become famous after developing Black Myth: Wukong, an AAA video game.
It is important to understand the Chinese success can be significantly attributed to its strong rootedness to its traditional Confucian work ethic. This includes respect and advocacy for hard work and diligence based on the belief that persistent effort and continuous improvement yield desirable results. Respect for authority and hierarchy is another strong attribute of the Confucian culture. Distilled at the workplace, it means showing respect to seniors and supervisors.
The Confucian ethic also places a premium on group harmony and cooperation. Teamwork and collaboration to achieve collective goals is of higher value than individual triumphs. Besides life-long learning and self-improvement is encouraged, which means relentless pursuit of knowledge, skill development and professional growth in the workplace.
[Atul Aneja is an advisor to COGGS. The article is republished from katehon.com. The views expressed in this article are solely his own.]
