China’s AI competition strategy: Wide dispersion, cheap tokens

China’s flagship AI company DeepSeek released its V4 model in April, with a promotional price that puts it at a mere fraction of the cost of its North American competitors’ models. This reflects a wider trend in China’s AI sector: Instead of competing directly with companies like OpenAI, Anthropic and Google, who offer state of the art services at a premium, Chinese companies are pursuing a strategy of wide diffusion and cheap tokens to gain market share across the world. For Europe, this may pose the risk of forming a quick dependency on Chinese models as the basis for AI development, plus European talent being funneled to enhance Chinese systems.

Many Chinese AI companies have followed the DeepSeek model. They are building models that are decent, but not cutting-edge, in performance and instead are focused on high compute efficiency that lowers costs for users. They have also made their models available via open-source platforms, meaning anyone can use, fine-tune and host them for free, as opposed to proprietary models like current Western leaders. Downloads of Chinese models on open-source platform Hugging Face have surpassed US models since late 2025. Of the top ten open-weight models by performance, the top seven are all Chinese. 

This approach supports their wide dissemination, particularly in fields where cost is a key consideration. One striking example is the adoption of AI foundation models for scientific research. In 2024, Chinese AI model usage in research outpaced that of US models. Even some Silicon Valley companies are experimenting with a hybrid approach, handing key decision-making tasks to premium US models and lower-level execution tasks to those from China. 

The rise of agentic AI, which employs AI “agents” to independently create solutions for more complex tasks, has driven AI model usage dramatically higher. This is expected to make cost considerations even more important. Chinese AI companies often can’t benefit directly from their overseas traffic – the platforms that host their open-weight models take the profits – but their price-competitiveness and wide availability have already gained them a foothold in the global ecosystem.

MERICS Senior Analyst Wendy Chang: “By making its models widely available and cost effective, Chinese companies have found an alternative way to stay in the global AI competition. By leveraging a strong presence in the open-source community and extremely low token prices, the strategy hopes to capture market share across the world, even if it doesn’t translate into profits right away.”