Growth Dragons Weekly: DeepSeek’s AI Disruption, Alibaba’s Robot Spectacle, and China’s Memory Chip Strides

Happy Lunar New Year! This is the most important festival for Chinese people around the world. Chinese stock markets remain closed and will reopen on February 5, 2025. However, it has been quite an eventful week—especially with all the DeepSeek news stealing the spotlight.

What happened in China this week:

1. DeepSeek Shows What China Does Best—and Why Alibaba Cloud Should Woo DeepSeek

2. Alibaba-Backed Robots Steal the Spotlight at the Spring Festival Gala

3. China Closes the Gap in Memory Chip Technology Against South Korea

4. Smithfield Foods IPO: Largest U.S. Pork Producer Goes Public

5. Foshan Haitian, China’s Largest Condiment Company, Eyes HK IPO

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#1 DeepSeek Shows What China Does Best—and Why Alibaba Cloud Should Woo DeepSeek

DeepSeek took the world by storm. By now, you should already know what it is, so let’s skip the introduction. From a Chinese perspective, this is a clear win—not just technologically, but also in terms of gaining moral high ground.

We all know the U.S. has imposed bans on high-end chips and chip-making equipment for China, initially slowing down innovation. But China, being China, has a knack for producing cost-efficient solutions. Instead of competing purely on technological superiority, DeepSeek focused on efficiency—delivering performance comparable to top-tier models at just one-tenth of the cost.

DeepSeek reportedly used 2,048 Nvidia H800 chips, a lower-tier version of the high-end H100, which Nvidia sold to China due to U.S. restrictions. Despite the weaker computing power, DeepSeek dramatically reduced training costs using a technique called distillation—instead of training on raw data, it leverages other AI models to "teach" its own model.

The biggest takeaway? DeepSeek challenges the entire economic model of the Western AI industry. At the same time, China has gained global goodwill, perceived as a victim rising against U.S. restrictions. Even as OpenAI and Microsoft allege that DeepSeek illegally used ChatGPT for training—and amid cyberattacks and criticisms of DeepSeek’s censorship—many on social media defended both DeepSeek and China. Some even saw this as a smear campaign.

With DeepSeek’s meteoric rise, Alibaba wants in on the action. It unveiled Qwen 2.5-Max on the eve of Chinese New Year—an upgraded version of its Qwen AI model, claiming it outperforms DeepSeek-V3, OpenAI’s GPT-4o, and Meta’s Llama-3.1-405B in key benchmark tests (Arena-Hard and LiveBench). The flagship Qwen2.5-VL-72B-Instruct is now accessible via Qwen Chat, Hugging Face, and Alibaba’s Model Scope.

This likely contributed to Alibaba’s surging share price over the past five days. But we suspect this is a case of investors using Alibaba as a proxy for DeepSeek, since DeepSeek itself is not publicly listed. Given Alibaba’s leadership in China’s AI space, it became the next best option.

However, we believe Alibaba’s best move isn’t just to compete—it’s to collaborate. Instead of trying to push its Qwen model, Alibaba Cloud should onboard DeepSeek onto its platform. This would drive cloud adoption much faster than attempting to lure users away from an already dominant player.

The key lesson? AI dominance isn’t about having the best model in tests—it’s about commercialization and mass adoption. ChatGPT and DeepSeek have already hit this tipping point. Alibaba should take a page from Microsoft’s playbook: instead of building its own model from scratch, Microsoft invested in OpenAI and got OpenAI to run on Azure.

Yes, DeepSeek is open-source, meaning anyone can deploy it on Alibaba Cloud—or any other cloud provider. But DeepSeek has already been a disruptive force in China’s AI market since the release of DeepSeek-V2 in May 2023, which triggered an AI price war. Its open-source model, priced at just 1 yuan ($0.14) per 1 million tokens, has forced Alibaba’s cloud unit to slash prices by up to 97% across various models.

This is exactly why Alibaba should embrace DeepSeek rather than fight it. By openly partnering with DeepSeek, Alibaba can ride on its popularity and channel that success into its cloud business—instead of trying to go head-to-head in an already brutal price war.

#2 Alibaba-Backed Robots Steal the Spotlight at the Spring Festival Gala