By Anthony Marcus, correspondent. Eurasia Business News, January 25, 2025. Article n°1396.

Chinese AI start-ups, like DeepSeek, are leveraging U.S. export restrictions on advanced AI chips to innovate and produce competitive models at lower costs. Last month, DeepSeek’s model, DeepSeek-V3, developed for $5.5 million, outperformed models like OpenAI’s GPT-4 and Meta’s Llama 3.1 using optimized techniques on restricted NVIDIA H800 GPUs. 

These restrictions have spurred Chinese firms to refine hardware efficiency and model architectures, narrowing the gap with global leaders. 

DeepSeek-V3 delivers a performance comparable to that of better-funded US rivals such as OpenAI. This week it impressed once again with R1, its foray into AI reasoning.

This trend highlights how sanctions can inadvertently foster technological advancements in targeted nations. This is the case for China but also for Russia.

Chinese tech firms, including Alibaba, Tencent, ByteDance, Moonshot, and 01.ai, are rapidly advancing in AI development, matching U.S. peers in capability while excelling in cost efficiency. This progress stems largely from U.S. export restrictions on advanced AI chips like NVIDIA’s A100 and H100, which have spurred domestic innovation and optimization in China. 

These restrictions aim to curb China’s access to cutting-edge technology for national security reasons but have inadvertently driven advancements in hardware efficiency and alternative solutions within the Chinese AI ecosystem.

U.S. export restrictions on advanced AI chips have significantly impacted Nvidia’s business in China. The company has lost market share, with Chinese revenue dropping from 26% to 17% of its turnover. 

Nvidia adapted by developing modified chips like the A800 and H800 to comply with restrictions, but new rules now target these as well, further limiting sales. 

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Despite this, Nvidia remains a key supplier in China, generating $12 billion in projected 2024 revenue from compliant chips. Nvidia’s HGX H20 GPUs are priced between $12,000 and $13,000 each.

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Nvidia is at risk of long-term losses and reduced competitiveness due to these U.S. restrictions on trade with China.

What American AI restrictions inadvertently achieved was a powerful commercial incentive for China’s private sector to step into the gap. And while the US often dominates in groundbreaking research, Chinese companies excel in execution, affordability and product diffusion. In ecommerce, electric vehicles, solar panels and batteries, they have demonstrated an impressive ability to scale up. The rise of DeepSeek is a vivid reminder that constraints can fuel innovation.

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© Copyright 2025 – Eurasia Business News. Article no. 1396.