This short note aims to decipher a striking graph related to current economic events. By launching its free artificial intelligence (AI) assistant in January 2025, Chinese company DeepSeek caused a real earthquake in the high-tech and semiconductor sectors. This Killer Chart highlights China’s crucial position in the field of semiconductors, which are essential components in the race for AI.
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Why is this interesting?
The advent of Deepseek probably marked a turning point in the history of AI. The Chinese company has managed to offer a rival to ChatGpt, with a model that is significantly more cost-effective than its competitors thanks to the use of a range of less powerful and less expensive microchips[1].
Beyond the fall in the share prices of major tech companies in the United States, this event could call into question the massive investments planned to develop the field of AI (chips, energy, data centers, etc.), particularly those linked to the Stargate program in the United States, announced by Donald Trump earlier in January. The main concern is a potential reduction in global orders for semiconductors.
Furthermore, this event also raises questions about the effectiveness of US measures to restrict China’s access to advanced electronic chips and semiconductors. This Killer Chart shows that China’s semiconductor imports have been declining since 2022, while local production has increased sharply, tripling over the past ten years. Is it reasonable to imagine that, after this « DeepSeek moment, » China is gaining the upper hand globally in the field of AI and semiconductors?
What do you think?
Contrary to the still widespread belief, China is no longer just the « world’s factory » but is gradually establishing itself as a leading global player in the high-tech sector. Following its resounding success with electric vehicles, China is once again making a name for itself in AI. In this field, however, the country still lags behind its American competitor, and while the « DeepSeek moment » seems to indicate that this gap is closing, it would be premature to conclude that China is in a position to become the main leader in this field.
The country’s desire to strengthen its autonomy in high technology has indeed resulted in rapid growth in semiconductor production and a growing role in the global supply chains (GSC) for these products. According to the Semiconductor Industry Association (SIA), China stands out in its specialization in the upstream phase of GSC, generating nearly 24% of global added value in 2022 in the « materials« phase (see Killer Chart, right ). However, in the more downstream phases (equipment, design, software design, intellectual property), China’s share of added value is significantly lower (close to 4%, according to the SIA). These are phases of specialization with a higher level of technological sophistication. The specialization of the United States, Japan, South Korea, and Taiwan in these phases of the CAM gives them a decisive comparative advantage in the semiconductor market.
Chinese production is therefore unable to meet all of the country’s needs. China will therefore remain dependent on imports to achieve its objectives, especially for the import of more sophisticated semiconductors. However, under the Biden administration, the United States has implemented several waves of restrictions to block Chinese supplies of such technologies. Given DeepSeek’s performance with less powerful chips, the Trump administration may be tempted to further extend these restrictions to a wider range of semiconductors, which would be a serious obstacle to China’s ambitions, both domestic and international.
Faced with these restrictions, however, China is not powerless and has arguments to fight back. The country is the leading producer of several critical metals that are key to the semiconductor production process (but also to green technologies), such as gallium, germanium, and antimony. At the end of 2024, the country announced that it would suspend exports of these critical metals to the United States in response to US retaliatory measures. Furthermore, maritime and security tensions in the Taiwan Strait, driven by Chinese military forces, are a crucial factor that could weaken semiconductor CAMs and lead to supply difficulties for the rest of the world.
The « DeepSeek moment » is likely to be remembered as a defining moment in the global AI race. While it is difficult to assess the short- and medium-term consequences, this moment alone is unlikely to fundamentally reshuffle the global AI and semiconductor landscape. China has certainly made up some of its ground, but given the challenges and constraints discussed in this note, it would remain in the position of an outsider.
Article written on January 30, 2024
[1] DeepSeek reportedly used only the much less powerful H800 and H20 chips from the American company Nvidia to train its DeepSeek-V2 and DeepSeek-V3 models. The acquisition alone is said to have cost nearly $6 million according to various sources, but these figures have made several experts skeptical. The DeepSeek-R1model is said to be 20 to 50 times cheaper to use than OpenAI’s model for ChatGpt, according to DeepSeek.
[2] Private sector investment of $500 billion in AI infrastructure.
[3] For more information on these topics, see the chapter on China entitled « China, everything a number one? » written by economists Evelyne Banh and Victor Lequillerier in the BSI Economics book published by Dunod in 2024.
[4] This phase involves the production and supply of all the materials needed for each stage of semiconductor manufacturing and assembly.
[5] According to the Critical Raw Material Alliance, China produces nearly 80% of the world’s gallium and nearly 60% of the other two metals.
