China’s AI Blitz Creates ‘Death Zone’ for Rival US Model Makers

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To win over developers, AI contenders must now either beat DeepSeek on price or surpass it on pure capability. On a widely shared benchmark chart from Artificial Analysis, there’s now emerged a so-called DeepSeek death zone. Charge more for the same product or be less capable for the same price and you might as well not try. Clearing the boundaries of that danger zone has become essential for long-term viability. Mid-market rivals are now under pressure to either slash prices to match the Hangzhou-based startup or spend heavily to build smarter models. The bigger GLM-5.2, Kimi K3 and Qwen3.8-Max models all sit above it in a higher performance bracket.

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“Where I think DeepSeek V4 Flash has really changed the economics is agentic workloads,” said Dermot McGrath, founder of Shanghai-based startup consultancy ZenGen Labs.

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When researching hundreds of companies, McGrath said he still uses Anthropic’s Claude Code as an architect to draft an action plan and summary brief. He then hands off execution to DeepSeek within the same environment, which deploys specialized AI agents to run queries and finish the task. The cost of AI work has inflated over recent months and efficiency has risen to be an even greater priority. That opens opportunity for services to augment, not necessarily replace, the most advanced US products.

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“A few months ago I wouldn’t have done that. The Chinese models weren’t as reliable at tool calling or long-running agent workflows,” McGrath said. Alibaba, addressing his exact pain point, made improvements in the so-called long-horizon execution of its new Qwen release. Previous models “were slower, more brittle and sometimes didn’t fully understand what they were supposed to do.”

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Beijing-based Z.ai also made a priority of enhancing its long-horizon performance with the latest release. Chinese companies have spent the past year iterating at a blistering speed, with internal competition helping accelerate timelines and sharpen focus. DeepSeek disrupted the Chinese contest as much as it did the global picture. 

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Moonshot and Alibaba made the riskier bet of building very large models, each with more than 2 trillion parameters, an indication of their sophistication. They then moderated their energy and computing costs by only activating segments of the model at a time. OpenAI and Anthropic, by contrast, treat their parameter counts as confidential and do not disclose specific figures.

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Parameters are the synapses of an AI brain that help systems store, process and respond with the help of more information.

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The two premier US AI labs are both planning initial public offerings with aspirations for market valuations of at least a trillion dollars, a staggering mark that hinges on high-margin business models. Yet China’s cheap and open-source competition now threatens their pricing power.

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“If there weren’t these Chinese open-source models, OpenAI and Anthropic would be laughing all the way to the bank,” said Kai-Fu Lee, an AI pioneer whose startup 01.ai offers open models to global clients. “Now there’s an alternative, and it’s cheaper.”

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To be sure, Chinese companies are themselves sacrificing the prospect for significant profit in the near term in an all-out rush for users, developers and tech leadership recognition. “China’s AI providers have become trapped in a brutal price war, prioritizing market share over profitability,” said Bloomberg Intelligence senior analyst Rob Lea.

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Beyond core language models, China’s AI momentum is most visible in the way it’s taken over the realm of video generation. That market has been left wide open after OpenAI shelved its Sora tool, citing the high costs of operating a resource-intensive service. Kuaishou Technology’s Kling AI video tool, stepping into the void, drew backing from Alibaba and Tencent Holdings Ltd. recently in a $2.8 billion financing round. A significant part of China’s strength comes from the willingness of companies and investors to disregard concern about immediate returns.

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No company has exemplified that approach more than ByteDance, according to BI’s Lea. It has poured money into making its Seedance the global leader on quality for AI video creation and stoked the price wars. How aggressive? “A 99% discount to prevailing market rates,” Lea said.

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— Zheping Huang, Nectar Gan and Saritha Rai

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—With assistance from Vlad Savov and Alan Wong.

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