Chinese AI Is Spooking Silicon Valley
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China has made some big advancements in AI recently.
New breakthroughs in powerful, low-cost Chinese AI models are sending shock waves through Washington and Silicon Valley. The latest Chinese offering seen as a credible challenge.
It is no longer a given that the U.S. frontier labs have a safe lead in AI.
Big U.S. AI companies are alarmed by this.
Our colleague Amrith Ramkumar covers tech policy and AI.
The view was essentially that the U.S. has a decent-sized lead. You could say six to nine months, a lot of people argue, over China and other countries.
These models are made by companies in China like Alibaba, Z.AI, and DeepSeek.
The most recent model that has everyone's attention is called Kimi K3. It was made by a company called Moonshot AI. And it's basically been shown in some benchmarks to be getting close to advanced U.S. capabilities. And that's what turned a lot of heads.
It's not just that these models are good. They're also way cheaper than American AI models from companies like OpenAI and Anthropic.
These things cost a fraction of what companies are currently paying to use Anthropic's top products and OpenAI's top products. And especially at big companies with a large number of employees, they're telling them to use AI as much as possible, but the bills are just racking up and they're quite insane. And these new models are really attractive to a lot of U.S. companies.
How did cheap Chinese AI models startle Silicon Valley and Washington?
We've written a lot about how Executives are struggling with that and finance departments are sort of fretting. It's millions and millions or tens of millions of dollars spent on AI compute. If you can cut that bill in half or 75% and get something close to the same performance, I mean, that's a no-brainer for a lot of executives.
But when it comes to the U.S. companies that make AI products, like OpenAI and Anthropic, they have a lot to be worried about. Some AI researchers and analysts have questioned whether this could be the beginning of the end of America's dominance in the AI race.
You have Anthropic and OpenAI barreling toward IPOs with valuations around a trillion dollars or other really high figures. And the notion that China could come out with more products to undercut those businesses is really scary for a lot of people.
Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudson. It's Tuesday, July 28th. Coming up on the show, who's afraid of Chinese AI?
All right, so these new Chinese AI models are much cheaper and have apparently gotten a lot better. So let's talk about how they did that, starting with how have they gotten so much better?
China has been thought to be several months to a year behind. And one way they've been trying to catch up is this technique called distillation, where you essentially train off another company's AI models.
China does an enormous amount of its own innovation and research on AI. But some Chinese companies have also been accused of distilling U.S. models, basically studying how they respond to prompts and then working backward. Kind of like trying to reverse engineer all the secret ingredients in a can of Coke.
With AI and how sophisticated these techniques can get, it's like just imagine millions and millions of cans of Coke and pouring them out, seeing what's in there and trying to mimic those. A lot of people have said if you go and use these Chinese models, the language they use when they respond will be similar to what is used in anthropics latest models, for example. That is definitely a part of the equation. And the stunning thing to a lot of people is that China is doing this even while the U.S. has restrictions on what advanced chips it can get.
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