A New Turning Point in China’s AI Rise: DeepSeek’s Inference Model Challenges U.S. Tech Dominance
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As of late November 2025, intriguing changes are occurring in the global AI industry. Chinese AI startup DeepSeek has unveiled its inference-specialized model ‘R1’, beginning to crack the AI technology dominance structure that the U.S. has led so far. The announcement is particularly noteworthy because it shows China is securing its own AI technological capabilities despite strong U.S. semiconductor export sanctions.
DeepSeek’s R1 model directly competes with OpenAI’s o1 series as an inference-focused AI. According to reports from Wall Street Journal, R1 demonstrates significant performance in complex mathematical problems and logical reasoning tasks. Personally, I’m more curious about how China managed to develop such a model despite the U.S.’s technology blockade policy, rather than the technical achievements themselves.
In fact, since 2024, the U.S. has significantly restricted AI semiconductor exports to China. With the ban on exporting high-performance GPUs like NVIDIA’s H100 and H800 to China, Chinese AI companies faced a severe shortage of computing resources. Yet, DeepSeek’s release of a competitive model under these constraints is truly an unexpected outcome. This indicates that China is moving away from the traditional hardware-dependent approach, focusing instead on algorithm optimization and efficient model architecture development.
Examining DeepSeek’s technical approach, it seems they are adopting a strategy different from existing large-parameter models. Instead of increasing the size of the model, they are known to have developed it to maximize the efficiency of the inference process. This approach can be seen as a practical solution to achieve high performance even with limited computing resources. In fact, benchmark results for the R1 model show that it performs similarly to or sometimes better than OpenAI’s o1 in mathematical reasoning and coding problem-solving.
## Changes in the Global AI Competitive Landscape
DeepSeek’s achievement heralds significant changes in the competitive landscape of the global AI market. Chinese companies have emerged as serious competitors in the conversational AI market, which has been led by U.S. companies like OpenAI, Anthropic, and Google. Especially in the specific field of inference-specialized models, they have already secured technical parity.
Market analysts are paying attention to the ripple effects this change will have on the entire AI industry. From a technical perspective, China’s independent AI technological advancement will exert new competitive pressure on U.S. companies. OpenAI recently launched the o1 pro model at a high price of $200 per month, but if DeepSeek offers a model with similar performance at a lower price, it could gain a significant advantage in price competitiveness.
In fact, Chinese AI companies are showing strengths in cost efficiency. Models like Baidu’s ERNIE series and Alibaba’s Tongyi Qianwen offer significantly cheaper API prices compared to Western competitors. DeepSeek is likely to follow this strategy. Given the relatively low development and operational costs in the Chinese market, they could leverage price competitiveness in the global market as well.
However, aside from technical achievements, DeepSeek must overcome several barriers to succeed in the global market. The biggest issue is geopolitical risk. Concerns about Chinese AI technology continue to grow in major markets like the U.S. and Europe. Data security, privacy protection, and potential government intervention are major concerns being raised.
There are also challenges in ecosystem building. OpenAI has already secured a user base of hundreds of millions through ChatGPT, and is actively integrating with major platforms like Microsoft and Google. In contrast, Chinese companies like DeepSeek face practical difficulties in establishing such partnerships in Western markets.
## The Paradox of Semiconductor Sanctions and Technological Innovation
DeepSeek’s success provides important insights into the U.S. semiconductor export sanction policy. The original intention of these sanctions was to slow down or hinder China’s AI technological advancement, but they seem to have acted as a catalyst for Chinese companies to develop more efficient and innovative approaches. This case shows that technology sanctions do not always yield the intended results.
In fact, Chinese AI companies are attempting various innovations to overcome hardware constraints. Model compression technology, distributed learning optimization, and algorithm efficiency improvements are examples. DeepSeek’s R1 model can be understood in this context as a result of technical creativity to extract maximum performance from limited computing resources.
On the other hand, this situation is also bringing changes to the global semiconductor market. NVIDIA remains the dominant player in the AI semiconductor market, but it is experiencing a decline in sales due to restricted access to the Chinese market. NVIDIA’s sales in China reportedly decreased by about 80% year-over-year in the third quarter of 2024. Meanwhile, competitors like AMD and Intel are seeking opportunities in the Chinese market, and Chinese semiconductor companies are also accelerating their development of proprietary AI chips.
Foundry companies like TSMC are also facing complex situations. They must comply with U.S. sanction policies while finding it difficult to completely abandon the massive Chinese market. As geopolitical tensions persist, the restructuring of the global semiconductor supply chain is accelerating.
For domestic companies, these changes hold significant meaning. Samsung Electronics is benefiting from the AI boom in the memory semiconductor sector, but it also needs to manage uncertainties in the Chinese market. SK Hynix is strong in the HBM (High Bandwidth Memory) market, but the technological advancement of Chinese AI companies could become a new competitive factor in the long term.
Looking at the case of DeepSeek, it seems that software optimization and algorithm innovation will become more important than merely relying on hardware performance in AI development. This could present new opportunities for domestic AI companies. If they can secure the technological capability to develop competitive AI models even in environments with limited hardware resources, they can compete in the global market.
Ultimately, the unveiling of DeepSeek’s R1 model signals that the global AI industry is entering a new phase. It marks the beginning of China’s serious challenge to U.S. technological dominance, and in this process, the existing rules of the game may also change. It will be important to watch how the AI technology competition between these two major powers unfolds in the coming years, and what opportunities other countries, including Korea, can find in this process.
This article was written after reading a Wall Street Journal article, with personal opinions and analysis added.
Disclaimer: This blog is not a news outlet, and the content reflects the author’s personal views. Responsibility for investment decisions lies with the investor, and the author assumes no responsibility for investment losses based on the content of this article.
