DeepSeek Shows China Containment Is ‘Illusion’, Says Deutsche Bank

DeepSeek’s sudden fame shows that plans to “contain China” were an “illusion”, Deutsche Bank analysts said, reiterating earlier comments that the AI start-up represented a “Sputnik moment” for the country.

“We think 2025 is the year the investing world realises China is outcompeting the rest of the world,” said the bank in a report titled “China Eats the World”.

China has been “unexpectedly” taking a global lead in increasingly high-end manufacturing sectors, recently including telecommunications equipment, nuclear power, defense, and high-speed rail, and most recently electric vehicles, the world’s first sixth-generation fighter jet and now DeepSeek, the study said.

Tariff threat

The report, authored by Peter Milliken, Hong Kong-based head of Asia-Pacific company research for the bank, argues that a bull market for Hong Kong and China began last year and that the country will soon emerge out of its current single-digit percentage of global market capitalisation.

The report noted that China faces significant trade barriers, including tariffs on electric vehicles for the US and the EU.

DeepSeek’s overnight success resulted in a one-day drop of about $1 trillion (£810bn) from world stock markets, with about half that amount removed from Nvidia’s market capitalisation.

Since then investors have shown a greater interest in Chinese tech stocks, with the Hang Seng Tech Index rising more than 20 percent since a January low, while the Nasdaq has declined.

Companies including Lenovo, smartphone maker Xiaomi, electric vehicle maker Li Auto and Kingdee International Software Group have been among the companies to make recent gains.

‘World-class status’

“The recent DeepSeek announcement is a timely reminder that behind the scenes, industrial policy for example Made in China 2025 has pushed many sectors toward world-class status,” said Sat Duhra, a portfolio manager at Janus Henderson Investors in Singapore.

The index remains, however, more than 50 percent below a peak in early 2021.

DeepSeek recently gained popularity with AI models that it says perform on par with rivals, but were developed at a fraction of the cost.