This is an audio transcript of the Behind the Money podcast episode: ‘The story behind DeepSeek’s breakthrough’
Michela Tindera
Recently, my colleague Eleanor Alcott took a trip to China’s southern Guangdong province. She travelled to a tiny farming village to visit the childhood home of Liang Wenfeng, the founder of the artificial intelligence start-up DeepSeek.
Eleanor Olcott
We’ve just arrived in Liang Wenfeng’s village of Mililing. And there are lots of signs welcoming him home, lots of red banners saying that we celebrate your success. You can probably hear . . .
Michela Tindera
That success Eleanor is talking about has to do with something very big that happened last month. You probably recall, this start-up DeepSeek shocked the world by proving that China could be competitive on AI. They showed they could potentially compete with the likes of American companies such as OpenAI or Meta.
Eleanor Olcott
We’ve just walked past Liang Wenfeng’s house. You can hear firecrackers going off in the background because it’s Chinese New Year and people singing karaoke as well. Liang and his parents left yesterday, apparently escorted by a bunch of security guards because they are being inundated by visitors from all over Guangdong coming to pay their respects.
Michela Tindera
Liang Wenfeng became a celebrity practically overnight, so much so that on Eleanor’s visit to Liang’s hometown, she found people who had travelled there just to see where this new hero of China had been raised.
Eleanor Olcott
(Conversation in foreign language)
So I spoke to this young teenager who travelled from Guangzhou to Mililing, this village. And I asked him what he thought of Liang Wenfeng. His response was really revealing and I think speaks to a broader attitude of the Chinese towards Liang.
(Conversation in foreign language)
He said that he’s a pragmatic technologist and actually because of him that China has been able to do something which, you know, they haven’t been able to do before, which is not only compete but also surpass the likes of OpenAI.
(Conversation in foreign language)
He’s become this kind of rallying call for Chinese pride, for Chinese sense of confidence in technology. And he said that Liang has made a big contribution to the country, a big contribution to China.
Michela Tindera
Now, all of this excitement around DeepSeek says a lot about the health of China’s tech sector. For years now, it’s been in a tough place.
Eleanor Olcott
Overall, the conditions are very difficult, especially for people in that kind of traditional internet space. We’ve seen structural changes to the economy, geopolitics and also Xi Jinping’s reforms. All of these have combined to dampen the entrepreneurial animal spirit in China.
Michela Tindera
So with the odds stacked against him, how did Liang Wenfeng do it?
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I’m Michela Tindera from the Financial Times. And this is Behind the Money.
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If you’ve been watching the tech sector for a while, you might remember a different era in China.
Eleanor Olcott
When internet giants like Alibaba and Tencent appeared unassailable, when their market cap was larger than tech giants like Facebook and Amazon, and foreign investors piled in to get a slice of these companies . . .
Michela Tindera
But by the time that Eleanor joined the FT as our China tech correspondent in 2021, she told me that thinking back on it, her start date on her beat felt a little bit late to the party.
Eleanor Olcott
I think the starting point was really the end of 2020. We’ve seen a number of reforms that have basically made it less profitable to run some of these tech companies. In reaction to this, right, we saw foreign investors retreating from China because it became very clear that regulatory power in China was very strong and that you couldn’t be assured that your investments wouldn’t be vulnerable to kind of sudden change in winds on the regulatory side.
Michela Tindera
Beijing cracked down on tech companies that were considered to control too much of their market or to be not aligned with Communist party values. This led to a series of anti-monopoly investigations and restrictions on certain businesses like gaming and edtech. No surprise, this all hampered business, and all that intervention has been only part of the problem for China’s tech sector.
Eleanor Olcott
We obviously had the pandemic, which shut down large swaths of the country for several months on end. And this one in many ways is the most important when it comes to the perspective of the entrepreneurial environment, is that as foreign investors have retreated, we’ve really seen state investors, so those are local governments and state-owned enterprises in China, stepping in and playing a much bigger role in bankrolling innovation.
Michela Tindera
Here’s the thing. Funding from the state has sort of always been there for start-ups in China. But as Eleanor said, it’s taken on a bigger role as foreign investors have pulled back and that comes with some strings attached. State entities will, in essence, make you pay back the money they gave you if your company doesn’t succeed. This obviously makes starting a business feel riskier and way less appealing.
Eleanor Olcott
And this is really detrimental to the overall entrepreneurial environment because you’re suddenly asking a founder who’s, you know, launching a risky company that if they are unable to exit that investment, they are personally liable for that. It’s kind of a form of debt, as it were. So we’ve seen this kind of wave of founders go on the debtors’ blacklist and many, many really tragic stories of founders who, you know, have lost everything and have basically been forced to kind of put their house on the line, etc, because of this trend.
Michela Tindera
Which brings us back to the question: how did Liang Wenfeng do it? How did he create DeepSeek?
Could you just tell me very briefly, in a sentence or two, what is DeepSeek?
Eleanor Olcott
DeepSeek is a small AI start-up based in Hangzhou. It was formed out of a quant hedge fund by this mysterious billionaire, Liang Wenfeng, and they’ve been quietly plugging away, releasing more and more impressive models since late 2023. But really, the world finally woke up to them at the start of this year.
Michela Tindera
And why did the world wake up to them this year?
Eleanor Olcott
So they released a series of models that were on par with leading ones from the US rivals. So that was surprising, first of all, from a Chinese company. But it was doubly surprising, and this is really crucial, because they appear to be trained on a far fewer number of chips.
Michela Tindera
So tell me a bit more about the founder of DeepSeek. We know that he’s from this tiny village. But what about his professional life?
Eleanor Olcott
Liang Wenfeng is a quant trader by background. He’s a true engineer, someone who’s really obsessed with the technology. He really believes in the power of machines and believes that humans are fallible and that we should be trying to replace, you know, human fallibility with machines. So at the hedge fund, that means using algorithms instead of human decision-making. At DeepSeek, that means trying to achieve AGI, that is artificial general intelligence, ie, the point at which machines will be capable of human-level critical thinking.
Michela Tindera
So Liang Wenfeng is a math nerd. He’s been running a quant hedge fund called High-Flyer for about a decade in China. But around 2021, he became obsessed with the potential of AI to build something larger than his trading shop. And he started buying Nvidia chips in bulk for that purpose. They’re needed to train advanced AI models and all that turned out to be really good timing. That’s because by 2023, when Liang launches DeepSeek, the US has imposed really tough restrictions against selling Nvidia chips to China.
Eleanor Olcott
People at the time just thought he was this weird, eccentric billionaire who was pouring money into vanity projects. But it turned out that that was actually a really prescient bet because once the race to kind of replicate OpenAI started in China, DeepSeek and Liang were in a really good position vis-à-vis some of the competitors.
Michela Tindera
Now there’s a few things that Liang does to get DeepSeek off the ground. The first is that he stays far, far away from that state-backed, strings-attached financing that I mentioned earlier.
Eleanor Olcott
So this is an incredibly expensive endeavour. Not everyone has money to buy these expensive AI chips to build models. Liang Wenfeng is uniquely positioned to be able to do this. He’s incredibly wealthy from his quant trading days. So he’s kind of been channelling these resources into what was initially somewhat of a side project, but has now become his, like, his full-term focus.
Michela Tindera
So since he kind of self-funded this thing, Liang has the luxury of modelling DeepSeek in a way that’s similar to the early days of some of the AI giants like OpenAI and DeepMind, which is basically like a pure AI research lab. That means they’re not really worried about generating revenue right off the bat. It’s just experimenting.
Eleanor Olcott
So everything I said previously about the entrepreneurial environment being difficult because of the funding constraints doesn’t really apply to this company. And actually, part of the reason for that success, part of the reason why they’ve been pushing out such innovative models and have been able to open-source those is because they’ve been under no pressure to commercialise.
Michela Tindera
Liang also has something else that’s unique: the manpower from his quant fund to use and put toward this AI research.
Eleanor Olcott
High-Flyer had a group of extremely talented so-called systems engineers. These are guys who basically set up the computing infrastructure to do these trades. And it turns out that actually this kind of talent, the ability to construct the computing infrastructure, to execute these trades is actually very, very helpful when you’re also trying to squeeze as much computing power out of these chips in order to train large language models.
Michela Tindera
So, Eleanor, what else do we know about Liang Wenfeng?
Eleanor Olcott
He, like, really gets into the weeds of how the technology is developing and by all accounts, is someone who is really kind of obsessed with the detail and is like actively involved in the process of developing DeepSeek’s technology.
Michela Tindera
The result: a model that’s being hailed as China’s answer to Silicon Valley’s AI prowess.
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Eleanor wrote her first story about DeepSeek back in June of last year, way before all of this attention from the west popped up. I asked her what it’s been like to watch the story unfold in China and what she thought it all meant.
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Eleanor, so how did he end up on your radar so many months before this came out into the forefront of most people’s awareness?
Eleanor Olcott
I first actually heard of DeepSeek a couple of years ago. One of my contacts said that a very mysterious quant fund had gathered one of China’s largest cluster of Nvidia GPUs. I didn’t think much of it until this company started releasing their models. So they released their first one at the end of 2023. But they became more and more competitive.
Michela Tindera
Yeah. And so I guess how surprising was it to be writing about a tech start-up like this in the middle of 2024?
Eleanor Olcott
It wasn’t so surprising because actually generative AI has been one area where there’s been quite a bit of financing, nowhere near the scale of the US players, but has received a lot of money and explicit kind of government support. So it wasn’t really surprising in the bigger context, right? Like this is a complicated picture. It’s not the same in every single one of these sectors. But actually, you could also argue, aside from that, that DeepSeek is kind of the exception that proves the rule, right? It hasn’t raised any external financing. They haven’t been under pressure from the state investors or VCs to show that they can make money.
Michela Tindera
So, did you have the chance to interview Liang while you were working on that reporting last year? I mean, have you ever met him?
Eleanor Olcott
No, I did not interview him then. I’ve seen a whole bunch of western media since this has come out asking for interview requests. And I found that quite funny because that’s just not how things work in China. Right? Like if you’re a tech executive under such intense scrutiny, given the kind of heightened geopolitical environment, like they’re not going round giving interviews to the western media. He has given a couple of interviews to the Chinese press a year or so ago. And basically what’s been happening since then is people have just been, you know, trying to extract as much information from the very, very limited amount of public information there is out there on this guy.
Michela Tindera
And why is that? Is the pressure you’re talking about something that’s internal or external?
Eleanor Olcott
They’re worried about both. They’re worried about the Washington reaction because DC has put a lot of limits on Chinese companies that they view as making too many strides in certain areas of high-end technology. And they’re also worried about the Chinese reaction because we’re just kind of emerging out of this era where Big Tech companies that were making lots of money have been under intense scrutiny in China. So it’s kind of a lose-lose situation if you go out and you’re very loud about your successes.
Michela Tindera
Eleanor, they made this big splash, DeepSeek made this big splash. Obviously, Liang is getting all of this attention in China. But what is next for this company? What is on the near horizon for DeepSeek and for Liang?
Eleanor Olcott
So DeepSeek is really in growth mode right now. They’re going to be continuing to plug away and releasing more and more competitive models. It’s unclear, like precisely what their commercial plans are, if they have any. I’ve been hearing that they’re on a big hiring spree at the moment. And actually, this is a really good moment for DeepSeek because, you know, previously they might have found it difficult to court the best AI talent because they were somewhat of an unknown. But right now, like, they are the hottest company. They are the OpenAI of late 2022. Like, everyone wants to be a part of this organisation. It’s not entirely clear where they go from here or whether or not they’re going to commercialise their technology. But what is clear already is that they’ve sparked off a kind of chain reaction in China, where all of the other generative AI players are trying to absorb and replicate some of their learnings and really focus on some of the techniques that DeepSeek has been pioneering to drive down the cost of training and running these models.
Michela Tindera
So do you think there’s a scenario in which Liang gets kind of too big for himself? I mean, is that something that you’d worry about if you were him?
Eleanor Olcott
That is a very good question. Right? One thing that will be interesting to watch and I think potentially is a bit of an issue for companies like DeepSeek is Beijing has thus far been supportive of generative AI companies. But, you know, he’s looking to build AGI. He’s looking to build machines that are capable of human-level critical thinking. What will that mean for Beijing once they start seeing, you know, this technology becoming more and more competent? I do foresee there being some tensions between, you know, the way the technology is evolving and actually the political response to that. Something to keep an eye on for the future.
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Michela Tindera
Behind the Money is hosted by me, Michela Tindera. It’s produced by me, Saffeya Ahmed and Katya Kumkova. Sound design and mixing by Sam Giovinco and Joseph Salcedo. Original music is by Hannis Brown. Topher Forhecz is our executive producer. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.
