The Week: China Is Undercutting America’s AI Boom
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Welcome to The Week from Profg Media, where we break down what mattered and what it all means. I'm George Hahn, and it's Friday, July 24th. Today, China is challenging America's AI dominance with cheaper models and a better global reputation. Then, the debt piling up beneath the AI boom. And finally, how the casino economy is turning young men into monks. Let's get into it. Last Thursday, a Chinese startup, Moonshot AI, released a model named Kimi K3, the largest open-weight model ever built. On some benchmarks, it outperforms the best models from OpenAI and Anthropic. It also runs at about a third of Anthropic's price. On Monday's Prof G Markets episode, Scott argued that Kimi is part of a much bigger threat to America's AI industry.
Well, I think the biggest story that it's got almost no coverage is what I think I would refer to affectionately as AI dumping from China. And that is free Chinese models went from less than a third of all traffic in late 2025 to about two-thirds. recently, and it's much less expensive. I mean, essentially what's happening in the air market has condensed what's happened to industrial economies in Europe, but instead of it taking two decades, it's taken two months. And that is they steal the IP on a cell phone tower from Siemens, and then they manufacture it with cheaper labor, and they sell it back to telcos for 40 cents on the dollar. And there are a lot of regional LLMs in China, and they have access to cheaper power, cheaper chips, less power consumptive.
And they're also subsidized by their own local governments. And I believe, and I said this before, that Xi has a vested interest that the ultimate Ohio-class submarine to be flipped against us is to engage in AI dumping. And I think it's happening. And you hear stories of VCs encouraging the portfolio companies to use these open-weight Chinese models. But you're seeing... The best business model in history is IP theft. A close second in terms of a pricing mechanism is 80% of the market leader for half the price. And DeepSeek and these Chinese open-weight models claim they're 90% of the market leader for a third of the price. I think this is going to be the next geopolitical pawn once Trump actually figures out what's going on here quickly enough.
Ed's read is that an AI price war has already begun and that America's leading labs are fighting it with money they don't actually have.
I think the most significant and the most important is the price war that appears to be breaking out right now. And that is... The pricing of these AI models is clearly becoming front of mind for enterprises, and it is very quickly becoming a race to the bottom because you have Meta that is coming out with their model, which is dramatically cheaper, and they have literally stated that it is their mission to initiate a price war because they know that they can play that game. They have the cash. OpenAI and Anthropic can only play that game for so long because where are they getting their money from? They're not getting it from profits. They're getting it from venture capital. And so at some point, if the investor spigot turns off, they can no longer play that game.
Gemini is also pricing their models lower. But the elephant in the room, and I'm 100% in agreement with you on this, is clearly the Chinese models. It is clearly... DeepSeq, Kimmy, all of these Chinese models, which are so dramatically cheaper than the US models that it's hard to actually fathom. Just to go through the data here, the price per million output tokens for OpenAI's model, GPT 5.6, is $45. For ClaudeFable 5, it's $50. The equivalent price for DeepSeq's model is 87 cents. So it is 99% lower than the American alternatives. And obviously now we're seeing that China is stealing market share. I don't know. I mean, we see all these benchmarks of like, which model is the best?
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