How Chinese AI Startup DeepSeek Made a Model that Rivals OpenAI

ON JANUARY 20, DeepSeek, a relatively unknown AI research lab from China, released an open source model that’s quickly become the talk of the town in Silicon Valley. According to a paper authored by the company, DeepSeek-R1 beats the industry’s leading models like OpenAI o1 on several math and reasoning benchmarks. In fact, on many metrics that matter—capability, cost, openness—DeepSeek is giving Western AI giants a run for their money.

DeepSeek’s success points to an unintended outcome of the tech cold war between the US and China. US export controls have severely curtailed the ability of Chinese tech firms to compete on AI in the Western way—that is, infinitely scaling up by buying more chips and training for a longer period of time. As a result, most Chinese companies have focused on downstream applications rather than building their own models. But with its latest release, DeepSeek proves that there’s another way to win: by revamping the foundational structure of AI models and using limited resources more efficiently.

“Unlike many Chinese AI firms that rely heavily on access to advanced hardware, DeepSeek has focused on maximizing software-driven resource optimization,” explains Marina Zhang, an associate professor at the University of Technology Sydney, who studies Chinese innovations. “DeepSeek has embraced open source methods, pooling collective expertise and fostering collaborative innovation. This approach not only mitigates resource constraints but also accelerates the development of cutting-edge technologies, setting DeepSeek apart from more insular competitors.”

So who is behind the AI startup? And why are they suddenly releasing an industry-leading model and giving it away for free? WIRED talked to experts on China’s AI industry and read detailed interviews with DeepSeek founder Liang Wenfeng to piece together the story behind the firm’s meteoric rise. DeepSeek did not respond to several inquiries sent by WIRED.

A Star Hedge Fund in China

Even within the Chinese AI industry, DeepSeek is an unconventional player. It started as Fire-Flyer, a deep-learning research branch of High-Flyer, one of China’s best-performing quantitative hedge funds. Founded in 2015, the hedge fund quickly rose to prominence in China, becoming the first quant hedge fund to raise over 100 billion RMB (around $15 billion). (Since 2021, the number has dipped to around $8 billion, though High-Flyer remains one of the most important quant hedge funds in the country.)

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