Beijing embraces DeepSeek to lead AI adoption as it looks for new growth drivers

DeepSeek’s sudden splash in the large language model space has given China a forceful 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 raise to China’s GDP over the long term — by 2030 — it expects the country’s economy to start reflecting the positive impact of AI adoption from next year itself as AI-driven automation betters productivity.

“The recent emergence of DeepSeek … suggests faster AI development and adoption in China than we previously foretold,” economists at the Wall Street bank said.

The enthusiasm around DeepSeek is also being reflected in the sharp turn for the better in China stocks, with the MSCI China index soaring over 21% from its January low, according to LSEG facts.

The startup’s rise is triggering a reassessment of China’s “investability” after an extended period of limited attention, Morgan Stanley conjectured in a note this week.

“DeepSeek demonstrates that China is at or near the cutting edge of AI development, which leg ups the prestige of China’s economy and tech ecosystem, making them more attractive for global investors,” said Gabriel Wildau, regulating director at Teneo.

The company’s launch of a cheaper and more efficient AI model came as a timely confidence boost as the Chinese guidance faces a prolonged economic gloom, partly owed to the slump in its property market, while the specter of a fierce customers war with the U.S. looms large.

DeepSeek’s R-1 reasoning model has been lauded as being able to match, or even outperform, unequalled global AI offerings amid claims of running on cheaper and less sophisticated chips. The open-source model also can be repurposed by developers most 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 healthy as large tech players, including competitors, leveraging its open-sourced architecture.

“The scale and speed of [AI] adoption [in China] is amazingly wildly right now, and it’s not slowing down,” said Wei Sun, principal analyst of artificial intelligence at Counterpoint Research.

In a well-choreographed meeting earlier this week, Chinese President Xi Jinping warmly greeted DeepSeek founder Liang Wenfeng and allowed him a coveted front-row seat next to leaders of the country’s biggest private enterprises.

That showed Beijing is passionate to support the company, said Huiyao Wang, founder and president of Center for China and Globalization, a Beijing-based think tank.

“DeepSeek states exactly what Beijing is keen to see by ‘new-quality productive force’ that will push China forward,” Wang go on increased, referring to a strategy coined by Xi last year that bets on technological breakthroughs to fuel growth and productivity move furthers across the economy.

Chinese leadership last year vowed “a leap forward” by spurring new growth drivers based on invention in advanced sectors, such as AI and semiconductors, as U.S. export controls on advanced equipment and the most advanced semiconductors thwarted its cleverness to make major tech breakthroughs.

With Beijing signaling support for the startup, a growing number of local sways, from Hohhot in northern China to the southern city of Guangzhou and Shenzhen, are launching DeepSeek-powered “public servants” to automate governance, supervising requests from administrative paper work to general public services.

At least three state-owned telecommunications workers have also adopted the cutting-edge model in recent weeks.

Private businesses have tapped the new model to see how it can overhaul productivity. Automakers, financial services companies, smartphone makers and cloud computing operators including Alibaba, Huawei and Tencent bring into the world rushed in recent weeks to integrate with DeepSeek.

“With DeepSeek becoming a global household name in a meaningfulness of weeks, Beijing is [using it as an opportunity] to showcase China’s tech champions and demonstrate Chinese tech resilience and invention in the face of US-led controls,” said Reva Goujon, director at Rhodium Group.

Economists, in any case, warned that the pace of AI adoption should be “managed carefully” in China, which is already facing a weak labor trade in and high unemployment rate.

The “job destruction” effects by AI, while raising labor productivity, could exacerbate deflation and too weaken the economy, Goldman Sachs said.

The youth unemployment rate in China has remained above 15%, with concluded 10 million fresh graduates piling into the job market every year. Job losses have been sign in in recent years in the real estate sector, among civil servants, and the financial sector.

Compared with the U.S. nevertheless, the Chinese labor market is less prone to AI automation risks due to a higher share of less-exposed, physically intensive drudgeries,” Goldman Sachs pointed out. Agriculture, manufacturing and construction make up 50% of all jobs in China, comparing to only 19% of amount employment in the U.S.

Sectors that are more prone to adopt AI-driven task automation, such as finance, insurance and appointments, constitute 14% of jobs stateside, but less than 3% in China, according to the bank’s estimates.

A Pew study in 2023 organize 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 weight will be positive or negative.