This week’s news that the DeepSeek Chatbot app, developed by China, was downloaded from the Apple app store significantly more times than the US-developed ChatGPT from Open AI, wiped billions off the global tech market.
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DeepSeek’s sudden splash in the large language model space has given China a powerful tool to catalyze artificial-intelligence adoption in the country and boost economic growth.
While Goldman Sachs pegs a 20-basis-point to 30-basis-point boost to China’s GDP over the long term — by 2030 — its expects the country’s economy to start reflecting the positive impact of AI adoption from next year itself as AI-driven automation improves productivity.
“The recent emergence of DeepSeek … suggests faster AI development and adoption in China than we previously anticipated,” economists at the Wall Street bank said.
The enthusiasm around DeepSeek is also being reflected in the sharp rally in China stocks, with the MSCI China index soaring over 21% from its January low, according to LSEG data.
The startup’s rise is triggering a reassessment of China’s “investability” after an extended period of limited attention, Morgan Stanley said in a note this week.
“DeepSeek demonstrates that China is at or near the cutting edge of AI development, which boosts the prestige of China’s economy and tech ecosystem, making them more attractive for global investors,” said Gabriel Wildau, managing director at Teneo.
The company’s launch of a cheaper and more efficient AI model came as a timely confidence boost as the Chinese leadership faces a prolonged economic gloom, partly owed to the slump in its property market, while the specter of a fierce trade war with the U.S. looms large.
DeepSeek’s R-1 reasoning model has been lauded as being able to match, or even outperform, leading global AI offerings amid claims of running on cheaper and less sophisticated chips. The open-source model also can be repurposed by developers outside the company to significantly boost efficiency at a lower operating costs.
The startup has shaken China’s AI ecosystem as well, with state-owned entities as well as large tech players, including competitors, leveraging its open-sourced architecture.
“The scale and speed of [AI] adoption [in China] is amazingly fast right now, and it’s not slowing down,” said Wei Sun, principal analyst of artificial intelligence at Counterpoint Research.
Beijing’s stamp of approval
In a well-choreographed meeting earlier this week, Chinese President Xi Jinping warmly greeted DeepSeek founder Liang Wenfeng and granted him a coveted front-row seat next to leaders of the country’s biggest private enterprises.
That showed Beijing is eager to support the company, said Huiyao Wang, founder and president of Center for China and Globalization, a Beijing-based think tank.
“DeepSeek represents exactly what Beijing is keen to see by ‘new-quality productive force’ that will push China forward,” Wang added, referring to a strategy coined by Xi last year that bets on technological breakthroughs to fuel growth and productivity gains across the economy.
Chinese leadership last year vowed “a leap forward” by spurring new growth drivers based on innovation in advanced sectors, such as AI and semiconductors, as U.S. export controls on advanced equipment and the most advanced semiconductors thwarted its ability to make major tech breakthroughs.
With Beijing signaling support for the startup, a growing number of local governments, from Hohhot in northern China to the southern city of Guangzhou and Shenzhen, are launching DeepSeek-powered “public servants” to automate governance, handling requests from administrative paper work to general public services.
At least three state-owned telecommunications operators have also adopted the cutting-edge model in recent weeks.
Private businesses have tapped the new model to see how it can improve productivity. Automakers, financial services companies, smartphone makers and cloud computing operators including Alibaba, Huawei and Tencent have rushed in recent weeks to integrate with DeepSeek.
“With DeepSeek becoming a global household name in a matter of weeks, Beijing is [using it as an opportunity] to showcase China’s tech champions and demonstrate Chinese tech resilience and innovation in the face of US-led controls,” said Reva Goujon, director at Rhodium Group.
Labor worries
Economists, however, warned that the pace of AI adoption should be “managed carefully” in China, which is already facing a weak labor market and high unemployment rate.
The “job destruction” effects by AI, while raising labor productivity, could exacerbate deflation and further weaken the economy, Goldman Sachs said.
The youth unemployment rate in China has remained above 15%, with over 10 million fresh graduates piling into the job market every year. Job losses have been reported in recent years in the real estate sector, among civil servants, and the financial sector.
Compared with the U.S. though, the Chinese labor market is less prone to AI automation risks due to a higher share of less-exposed, physically intensive jobs,” Goldman Sachs pointed out. Agriculture, manufacturing and construction make up 50% of all jobs in China, comparing to only 19% of total employment in the U.S.
Sectors that are more prone to adopt AI-driven task automation, such as finance, insurance and services, constitute 14% of jobs stateside, but less than 3% in China, according to the bank’s estimates.
A Pew study in 2023 found that 19% of U.S. workers are in jobs with high exposure to AI. That study used the term “exposure” as it’s unclear whether AI’s impact will be positive or negative.
While AI application may cause the number of displaced workers to rise in the near term, these workers will eventually find jobs in other sectors where labor has a competitive advantage, helping employment to grow again, Goldman said.
— CNBC’s Dylan Butts, Evelyn Cheng contributed to this report.