DeepSeek – The $6m question.

The big question is why China has allowed R1 to be exported.

• DeepSeek is quickly becoming infamous as Western companies, institutions and governments ban the use of the DeepSeek chatbot service but the real value of DeepSeek to the industry is in the methods that it used to achieve leading-edge performance at a fraction of the cost.
• If these methods are real and reproducible, then DeepSeek will have made a substantial contribution to AI even if its models end up only being used in China.
• This is why the main question to be answered is why China would allow these innovations to benefit its geopolitical rivals and get almost nothing in return.
• DeepSeek has two points of presence outside of China.
• The first is the DeepSeek chatbot which is powered by the R1 model and resides on a server in China while the second is a copy of the R1 model that DeepSeek has made available to the open-source community meaning that anyone who wants it can use and modify it in any way they like.
• The bans that are being announced are on the chatbot service where the inference is executed in China meaning that the prompts and any data that they contain will be accessible by the Chinese state.
• As my colleagues over at Strand Consult have pointed out, this contravenes the EU’s GDPR and therefore it is no surprise that the chatbot has been banned in Italy, France, Belgium and Germany and I suspect that the rest of the EU will follow.
• Italy has already gone so far as to remove DeepSeek’s chatbot from the Apple and Google app stores.
• Taiwan has now banned the chatbot from use by the government with Texas, the US Navy, US Congress and Nasa also quickly following suit.
• Hence, I think we will see the chatbot be banned in all of the EU and Western agencies involved with government or national security.
• This raises the question of what will happen to the DeepSeek R1 model that the company has made available to the open-source community and which is quickly appearing as an option on cloud services worldwide.
• All the cloud providers have done is download the model, make sure that it runs on their infrastructure and APIs and offer it as an option to any of their customers who want it.
• The question that needs to be understood here is why has DeepSeek made its model available to anyone who wants it for free.
• The Chinese state will have had to have issued DeepSeek with a licence to export its algorithm and so the real question is why is the Chinese state happy to let its adversaries have one of its most advanced pieces of AI technology for free and unencumbered?
• RFM sees three possibilities.
  • First, Methods: which could be where the real AI technology lies not in the model but in the methods that were used to create and run it so cheaply.
  • DeepSeek has outlined the techniques that it used to achieve its claims, but it has not provided a step-by-step procedure by which these efficiencies could be replicated.
  • This means that the real breakthroughs may not been disclosed to a level that would allow them to be replicated and that the IP remains proprietary to DeepSeek.
  • Hence, the Chinese state would be making significant PR gains (see below) while not giving up very much.
  • Second, PR & propaganda. The last few years have seen a substantial tit-for-tat battle between the US and China to be seen as having supremacy in AI.
  • This is an important part of waging the ideological struggle upon which both are engaged, and China has proved to be particularly adept at extracting the maximum value from any “advances” that it makes.
  • Hence, one can see how China would be quite happy for DeepSeek to make its model freely available if the real IP is staying at home.
  • Third, Backdoors and loopholes where the R1 model could contain backdoors and loopholes that would either secretly send data back to China or allow China to access systems upon which DeepSeek is running.
  • This is a less likely possibility, but history has seen this sort of thing happen before and with the model being around 770GB in size, finding these would be like looking for a needle in 100 haystacks.
• I suspect that the net result is that Western companies and states will choose not to use DeepSeek because there are plenty of Western alternatives available that perform just as well especially if the methods prove not to be replicable.
• DeepSeek surprised the world with its claims on how cheaply it was able to create and run its models and if Western companies can replicate DeepSeek’s methods on their own models, then they will have reaped all the benefits and taken none of the risk.
• This is why I am sceptical as to whether Western companies will be able to replicate DeepSeek’s methods because if they succeed, China will have given away a core advantage in AI and received very little in return.
• This is not how one wins an ideological struggle with one’s opponent which is why I and many others are questioning what China’s motivations behind the release of DeepSeek really are.
• In the meantime, the two sides continue to move further and further apart making the scenario of a Balkanisation of the internet increasingly likely.
• This will have the effect of splitting the Internet into two pieces as Chinese devices and the digital services created for them will no longer so easily work on, or communicate with non-Chinese devices.
• This will create two Internets, one for China and another for everyone else.
• Hence, the size of the network will become smaller as China exits, meaning that the utility of the entire network will decrease dramatically (Metcalf’s Law of Networking).
• This is why we have long forecasted that the long-term growth of the technology industry will be lower as a result of this split caused by the ideological rivalry.