China’s AI capabilities continue advancing rapidly across models, silicon and infrastructure, with DeepSeek’s latest R1-0528 update claiming performance parity with the latest generations from OpenAI, Google and Anthropic. The updated model (rumoured to be R2 but given its modest performance bump, kept as a point release to R1) released this week, offers a reported reduction in hallucinations whilst adding enhanced creative writing and improved code generation.
On the hardware front, the shift to domestic silicon is accelerating. With Trump administration restrictions on Nvidia’s H20 chip and current supplies projected to last only until early next year, China’s tech giants, Alibaba, Tencent, and Baidu, are racing to adopt local alternatives. They’re testing Huawei’s Ascend chips despite US warnings of potential penalties for global use, whilst pursuing a hybrid strategy: using remaining Nvidia chips for AI training while shifting to domestic processors for inference tasks. Moving from Nvidia’s CUDA to Huawei’s CANN framework won’t be easy however and could cause development delays. Huawei is expanding production but cannot yet meet demand, prompting companies to explore alternatives like Cambricon and Hygon processors, with some investing in building their own chips. Meanwhile, progress continues elsewhere. Lisuan Technology successfully booted its 6nm GPU targeting RTX 4060 performance, with mass production scheduled for 2026. Huawei’s next-generation Ascend 910D aims to surpass Nvidia’s H100, accepting that achieving competitive performance requires more chips and significantly higher power consumption, inefficiencies China views as the price of sovereignty.
These advances come as Nvidia CEO Jensen Huang criticised US export controls at Computex. “Export control was a failure,” Huang stated, revealing Nvidia’s China market share plummeted from 95% to 50% whilst achieving little strategic benefit. The restrictions resulted in “multiple billions of dollars” in inventory write-offs. Nvidia may release a compliant Blackwell chip, stripped of features like high-bandwidth memory, as early as July, though Huang admitted navigating restrictions proves “quite complicated.”
China’s coordinated push extends beyond individual breakthroughs. With over 250 AI data centres operational or announced, plus orbital computing networks already launching satellites, the infrastructure foundation is also being built out. The state directs banks to fund strategic sectors regardless of profitability, ensuring AI companies access capital even if they never generate returns, a socialist approach to technology development that prioritises output over profit. But China’s top-down AI strategy as far as it can be known externally, still has elements of caution. Ding Xuexiang, Xi’s trusted lieutenant overseeing AI development, revealed the Party’s dual approach at Davos: “We need to invest in AI, but we can’t go all out without knowing what the brakes are. We have to develop the brakes at the same time.” The Party fears AGI could become a tool for hostile actors to undermine CCP authority. Every major tech company in China already has teams who can “pull the plug” if algorithms generate sensitive content – a control mechanism certain to extend to AGI development.
Takeaways: China is in the AI race, but it’s also simultaneously building up its control mechanisms. The Party wants AGI’s power but fears its potential to erode control, creating a unique development path where every breakthrough comes paired with a kill switch. As tech giants urgently pivot to domestic chips and models match US capabilities, China demonstrates that authoritarian AI development can advance rapidly despite technical hurdles, pursuing somewhat different priorities than Silicon Valley’s increasingly unfettered race to AGI.