How DeepSeek is Forcing China's Tech Giants to Pivot

Alibaba, Baidu, and Tencent's moves

The Great Tech Reset

Baidu, Tencent, and Alibaba are integrating DeepSeek's AI models into their core products and finding new partnerships to build AI moats. The shift isn't just a technical decision. It is a reimagining of how China's tech ecosystem operates.The bigger story is about how a silent innovator is compelling China's most powerful tech companies to rethink their playbooks.

China Tech Incumbents’ Dilemma 

For years, China’s tech behemoths followed a tried-and-tested formula: develop proprietary technology, maintain tightly controlled ecosystems, buy out emerging competitors before they became threats, and monetize relentlessly. This model worked well in the mobile internet era. But AI is rewriting the rules, and the incumbents are now scrambling to respond.

No company has had to eat its words faster than Baidu, once the loudest champion of closed-source AI. Despite the growing trend towards open-source, Li has consistently defended the closed-source model as commercially viable, stating that open-source models are inefficient and not cost effective. 

At the most recent Dubai World Government Summit, Baidu changed its tone. “We see innovation everywhere, and we must adapt to this rapidly changing innovation,” said Robin Li. On the same day as Li’s comments, Baidu announced the integration of DeepSeek’s R1 model into its WenxiaoYan app (formerly Wenxin Yiyan), and app will be made free for users starting April 1. 

Tencent, traditionally focused on social networking and gaming, has integrated DeepSeek into WeChat search. Even platforms like Tencent's with massive user bases must find help elsewhere if they can't innovate. The quick move on Wechat’s side marks a departure from its typically cautious approach to feature upgrades. It also reflects the broader industry trend of leveraging AI to enhance consumer-facing products and capture market share. Notably, gaming was not part of the DeepSeek integration. For now, Tencent is keeping its cash cow—gaming—close to its chest. Following the DeepSeek news, Tencent's shares have risen to their highest point since 2021, suggesting that investors view this as a strategic necessity and the quick move on it is a positive development, not a lack of internal capability.

Alibaba, meanwhile, is also back in the picture–if it ever left—and reasserting its position in China's AI landscape. The sequence is telling: First, the company secured the CCTV Spring Festival Gala sponsorship—a symbol of its renewed alignment with state priorities and the end of the regulatory crackdown era.

So far, Alibaba is the only one from the above-list not working with DeepSeek. Instead of a partnership, Alibaba is trying to establish its lead position. On February 11th, The Information revealed Apple's choice of Alibaba as its AI partner in China. The scoop, which closely mirrored Alibaba's official narrative, positioned the company as the obvious choice over both DeepSeek (characterized in the article as lacking manpower and experience) and Baidu (whose progress reportedly fell short of Apple's standards).

Two days later, Alibaba’s narrative continued to unfold at the World Government Summit (WGS) in Dubai. Joe Tsai, Alibaba's co-founder and chairman, delivered a fireside chat emphasizing that competing for general AI dominance is about delivering tangible economic impact and productivity. Alizila, Alibaba's official corporate news site, recapped, "Alibaba has positioned itself as a leader in AI and open-source initiatives."

On the same day, Tsai penned an SCMP op-ed that reiterated these points, which aligned with China's official lines. Tsai emphasized AI's role in driving real-world economic impact and the importance of open-source democratization. This messaging, focusing on practical applications over cutting-edge research, echoes the state's vision of AI as a tool for economic growth rather than an elite technical pursuit.

This strategy is working. Alibaba is out of the woods. The company reported better-than-anticipated revenue gains in its two most important divisions: e-commerce and cloud services, which houses its AI endeavors. The recently posted earnings was received well, and Alibaba’s shares gained 8%.

photo credit: SCMP

The Silent Challenger

DeepSeek has emerged as a transformative force in China's AI landscape. While China's tech sector has traditionally been dominated by well-resourced incumbents that shape market dynamics, DeepSeek has defied this pattern.

But for how long? Reports suggest that DeepSeek is exploring external funding, and Alibaba and state-affiliated funds have expressed interest. Alongside these investment discussions, DeepSeek and its hedge fund parent, High-Flyer, are weighing whether to transition from a research-first model to one focused on revenue generation and long-term profitability. They are also considering establishing data centers in Southeast Asia to gain access to Nvidia AI chips, a move to navigate U.S. export restrictions.

Founder Liang Wenfeng remains an elusive figure. DeepSeek has become entangled in U.S.-China tensions, being accused of everything from technology theft to being a state asset.

But Liang is no doubt in the big leagues. He was present at the high-profile meeting hosted by President Xi with private-sector tech leaders. International media go out of their way to visit places like Mililing Village in Guangdong, in southern China, to speak with locals who knew Liang. This endless fascination has fueled a steady stream of coverage about the company—a PR dream!

DeepSeek’s rise suggests that China’s AI future will not be dictated solely by its traditional tech giants. There are others worthy of attention. Instead, success will depend on which companies can adapt to the open-source revolution and fast-moving challengers. 

While the competitive landscape is evolving, certain boundaries persist. When asked to analyze an article about the recent tech leadership symposium, DeepSeek politely suggested a change of subject.