Economic Turbo Deepseek: China's new AI hope as an economic engine?

Published on: March 22, 2025 / Updated on: March 22, 2025 – Author: Konrad Wolfenstein

DeepSeek as an economic engine: China's new AI hope? – Image: Xpert.Digital

DeepSeek in China: Artificial Intelligence as a state strategy?

DeepSeek: The engine behind China's new economic strategy?

The People's Republic of China is increasingly relying on the AI company DeepSeek as a key technology to boost economic growth while simultaneously strengthening its technological sovereignty. Following the international attention surrounding the DeepSeek R1 model in early 2025, the Chinese leadership has placed the Hangzhou-based company at the heart of its economic strategy. DeepSeek is not only supported at the highest political levels but is also being integrated into numerous areas of state administration and positioned as a symbol of China's AI ambitions.

Suitable for:

Deepseek R2: China's AI model Turbo ignites earlier than expected-Deepseek R2 should be code expert-developer!

The strategic importance of DeepSeek for China's economy

The political leadership in Beijing has explicitly declared DeepSeek a growth engine for the Chinese economy, which is currently weakened by various factors: The trade dispute with the US is weighing on the industrial and export sectors, domestic consumption remains low, and the ongoing real estate crisis is causing economic uncertainty among the population. In this challenging environment, DeepSeek is intended to serve as an engine of innovation, not only driving the technology sector forward but also generating positive spillover effects on the overall economy.

The Chinese leadership is pursuing several economic and strategic goals with its support of DeepSeek. On the one hand, the company is intended to accelerate domestic AI development and make China less dependent on Western technology imports. On the other hand, DeepSeek is being positioned as a symbol of China's innovative strength in order to bolster international confidence in the Chinese economy and attract investment.

DeepSeek's success is already contributing to a positive perception of the Chinese economy. The MSCI China Index and the MSCI China All Shares Index rose by 34% and 29% respectively over the past 12 months, outperforming both the MSCI World Index and the S&P 500. Experts are already speaking of a "DeepSeek mystique" on the Chinese markets.

DeepSeek receives the highest political support

The importance China attaches to DeepSeek is evident in the direct support it receives from the highest political levels. President Xi Jinping invited DeepSeek founder Liang Wenfeng to a highly publicized meeting in Beijing, which was also attended by other technology leaders such as Alibaba founder Jack Ma. With this symbolic gesture, Xi signaled his intention to provide greater support for the private sector in the technology field in the future.

Premier Li Qiang had previously met with DeepSeek founder Liang Wenfeng. Liang was expected to contribute his expertise to the government's so-called work report – the political agenda for the coming year. The inclusion of a relatively new company in national policymaking underscores the strategic importance Beijing attaches to DeepSeek.

Following the meeting with Xi Jinping, DeepSeek's technology was rapidly integrated into various areas of the Chinese bureaucracy. Courts use DeepSeek to issue rulings within minutes; doctors in Fuzhou use the technology to create treatment plans; in Meizhou, DeepSeek answers inquiries on a government hotline; and in Shenzhen, the technology assists in the search for missing persons by analyzing surveillance videos.

DeepSeek in the context of China's AI strategy

The funding of DeepSeek is part of a broader Chinese AI strategy, formalized in 2017 with the “Next Generation Artificial Intelligence Development Plan.” This plan divides China’s AI development into three phases: by 2020, China should reach the global state of the art; by 2025, the domestic AI sector should grow to a value of approximately €55 billion; and by 2030, China aims to become the world’s leading innovation hub for AI.

DeepSeek fits perfectly into this long-term strategy. The company demonstrates China's ability to develop advanced AI models that can compete with Western offerings. Furthermore, DeepSeek shows that despite US export restrictions on high-performance chips, China is capable of finding innovative solutions – the company developed its model with significantly lower costs and less powerful chips than comparable US companies.

At this year's National People's Congress, AI was explicitly named as part of the "new quality productive forces" with which China intends to boost its economic growth. The government pledged to "support the widespread, large-scale application of AI models." DeepSeek is presented as a flagship project symbolizing the government's renewed support for innovative technology companies.

Hangzhou as an emerging AI metropolis

DeepSeek's hometown of Hangzhou aspires to establish itself as China's new tech metropolis. The city has integrated DeepSeek and other technology companies into the "Hangzhou Chengxi Science and Technology Innovation Corridor"—a government-sponsored project aiming to create a Chinese equivalent to Silicon Valley. Also dubbed "China's Vision Valley," it is intended to become the center for "a new generation of AI innovation and development.".

The Zhejiang Lab, a research institution organized by the provincial government, Zhejiang University, and the Alibaba Group, serves as a hub for technology research in the region. It is described by the Chinese Ministry of Science and Technology as the "core element" of the Hangzhou Chengxi Science and Technology Innovation Corridor. This institution not only supports local research but also organizes recruitment events to attract talented scientists to Hangzhou.

Economic impact and international dimension

DeepSeek's surprising success caused a sensation not only in China but worldwide. When the company released its R1 model in January 2025, US technology stocks lost significant value. Chipmaker Nvidia alone lost around $600 billion in market capitalization. This market reaction illustrates the perceived threat to US technological leadership.

Ironically, US export restrictions on high-tech chips may have had the opposite effect to their intended purpose. The restrictions forced DeepSeek to “train more efficiently,” said Jeffrey Ding, a professor at George Washington University. The company developed innovative methods such as the “Mixture of Experts” technique, which activates only relevant parts of the model for specific tasks, requiring less computing power.

Despite geopolitical tensions, DeepSeek is sparking renewed interest in China among Western investors. Skepticism towards the Chinese market has been higher than ever among Western investors in recent years, but DeepSeek could bring about a surprising turnaround. The company itself is now considering external financing to support its rapid growth. In addition to Chinese companies like Alibaba and state-owned funds, international investors have also signaled interest.

Suitable for:

Cars, telecommunications, cloud computing, robotics: DeepSeek AI – Chinese companies are focusing on the next stage of innovation – What we currently know

China's balancing act: Innovation promotion versus control at DeepSeek

Despite government support, DeepSeek faces significant challenges. The company needs more powerful hardware for its continued development, but US export restrictions limit its access to modern Nvidia chips. DeepSeek is therefore considering using data centers in Southeast Asia to gain access to more Nvidia chips.

There are also reports that DeepSeek, under pressure from the political leadership, has forbidden its senior employees from traveling abroad. The fear was that they might remain there or pass on knowledge to foreign competitors. This measure illustrates the balancing act the Chinese leadership is performing between promoting innovation and maintaining control.

Abroad, DeepSeek's successes have raised concerns about censorship, security, and data processing. Government agencies in Australia, South Korea, and Taiwan have instructed their employees not to use DeepSeek's services. OpenAI warned in a letter to the White House that Beijing could force DeepSeek to manipulate its models to cause harm.

DeepSeek in the Chinese AI competitive landscape

DeepSeek is not the only significant AI company in China. Established firms like Cambricon (market capitalization: $34 billion), iFlytek ($16.6 billion), and SenseTime ($7.1 billion) lead the market. In addition, there are the so-called “six tigers”—Stepfun, Zhipu, Minimax, Moonshot, 01.AI, and Baichuan—which are considered promising newcomers.

Major Chinese technology companies are also active in the field of AI. Baidu recently unveiled two new models: Ernie 4.5 and Ernie X1. The latter is said to offer the same performance as DeepSeek's R1, but at half the price. Alibaba with Qwen and ByteDance with Doubao have also developed powerful speech models.

What sets DeepSeek apart from its competitors is the special government support it receives. While other companies also receive funding, none has been positioned as explicitly as DeepSeek as a national beacon of hope. This special status offers advantages in integrating into government structures, but could also lead to increased pressure to meet expectations.

DeepSeek as a symbol of China's AI ambitions

DeepSeek has rapidly transformed from a hedge fund side project into a central element of China's economic strategy. The company's promotion by the highest political levels and its rapid integration into state structures underscore the importance China places on AI technology for its economic future.

In response to increasing technological competition with the US, China is positioning DeepSeek as a symbol of its innovative strength and as proof that, despite trade restrictions, it is capable of developing world-leading technologies. The company's economic success and its positive impact on market perception show that this strategy is at least partially successful.

Nevertheless, China faces the challenge of balancing political control with economic freedom. For the long-term development of DeepSeek and other innovative companies, it will be crucial that the government provides the right level of support without stifling the creativity and adaptability essential for success in the fast-paced technology sector.

Suitable for: