What's Behind China's Open-Source AI Strategy

0:00 What is the economic advantage of open- sourcing all of this technology? >> They're not not making money. In fact, they're making a lot of money. So, >> they're like, yeah, like >> they have a lot of money though. >> What is the economic advantage of open sourcing all of this technology? So, I do want to start with obviously a lot of these labs are actually looking for fundraising because obviously training models is extremely expensive game they're playing or or or task they're trying to complete. Pete, you know, Zi went public earlier this year.

0:35 Mini Max went public earlier this both on Hong Kong stock exchange. Moonshot is in the pipeline supposedly rumored for the next within the next six months. Deep See supposedly also looking at the starboard in China. Now, that out of the way, they need money, right? It's not like they don't need money. However, I think there's a misunderstanding around open source monetization. you're still paying APIs for managed services and you know, you're still paying potentially fireworks for inference service and if you pay for fireworks, inference service, they usually have a commercial agreement with like say the Kimmy provider where there's some kind of a break break as well. open source is not anti-commercial but obviously it makes helps you make less money. Now it goes back to are you that money hungry or do you want the technology to proliferate and diffuse more but you can still make money and I think this is where people are also realizing actually kind of calling some of the closed frontier labs a bit of hypocrisy right now because actually labs monetize you know like I said through API access managed services a lot of times you know you and I probably will not be buying our own GPU and deploying our own models and running security debugging monitoring So there's a lot of need for still buying that API.

1:49 Now beyond that, I think you know if you look at I think moon Miniax EI I think Z AI's run rate AR is already something like 1 billion now and then Miniax projected to be 1 billion or to 1.2 billion by the end of the year. So yes, not as lucrative as maybe anthropic or open AI. They're not not making money. In fact, they're making a lot of money still, >> right? There's there's also this view that like well if you think about national competitiveness and we've seen governments get involved I mean Xihinping gave a speech about the virtues of open source the US government seems to be touching AI every week now you know I think in part for a desire to mitigate the harms but also because they view it as important you know from a national strategic perspective to have the lead u so there is this view that like you know the companies in China can can open source because for the government in China it's you know basically the best possible outcome is to commoditize this like leading industry in the United States.

2:56 Your thoughts? Okay. First I think the argument around subsidization is really funny because I I don't know if the government is that rich frankly just chucking billions and billions at every lab. So definitely I don't think they're like >> yeah like >> they have a lot of money though. There's a lot of subsidization on energy and data centers, but it's definitely if you talk to these labs, they're still they're private companies and in fact some most of them actually don't want to take government money because there's some hindrance as well, right? Like in when they go public and etc and their structure. Now that side, I think it was really interesting that President Xiinping attended WAC, which is like the world, it's called the world AI conference that hosted annually in Shanghai. it's been around since 2018, but it honestly didn't really get much traction until maybe last year when post deep seat takeoff and now like there's floods of American investors, American policy, think tank people all going in. And I think what was really interesting is to your point, I think governments are viewing AI as a very strategic driver. Now, it could be a driver, I think it's a fewold, a driver for economic prosperity, economic growth, of course. it's a driver for I think soft power and diplomacy of course and now also obviously a very fundamental point on technological competition. in terms of what she said I think the highlights was really about you know open openness and inclusivity which is cannot be actually mistaken for quite literally embracing open source. I think he talked a lot about openness, inclusivity that was echoing what even the previous leader that attended which is I think I think it was the premier that attended WSC last year. It's a lot of the messaging towards the global south because I think there's a lot of worry around you know countries that frankly don't have the talent or compute or even just the raw material whatever needed to right now participate on the model layer. they don't want to be left behind and Xi Jinping's message is saying hey we will be exporting this along our belt and road essentially that you can still be participate in the AI boom or the next wave of infrastructure upgrade >> yeah I mean I'll just say you know and then we can go to break unless you want to comment on it like it's definitely in China's interest for this all to just commoditize even if it's not the direct strategy I'm sure they're they're quite happy to see the US industry after all these billions of dollars have been put towards the developing of models at least sweating a bit. So there will have to be you know some some adjustment on the US side because this is sort of if you're thinking about it from the closed model standpoint it's not what you want. It's probably why we see we saw Anthropic spend all that time you know waffling or not waffling but just not responding to this open- source you know sort of moment of praise in the US. and so that sort of leads us to what the what the competitive dynamics of AI looks like. Assuming this is continues to be the rule that that open source, you know, it used to be that the thought was open source was a year behind like the US frontier models. Now it seems like it's just months. What does the competition in AI look like right now?

6:20 If you have, you know, basically this world, let's say we get to the world where open source commoditizes the closed models and you know the whole plan was to sort of have these closed models and sell AGI on a meter. but if you can't do that then what happens to AI? >> I think for sure there has been a bit of a global reckoning I think on twofolds. One is the need for governance because of how how much these AI models can do and the potential risk that's been talked about especially in the mainstream narrative in the US right and I think that's really sent kind of fear a bit around the world now given that I think following up on what we just talked about I think it is in China's China's interest and and it was reiterated at WIC where AI governance will be another focus and this ties to I think the whole open source thing because it says it basically they're signaling let's build around the industry and find guard rails to basically in some way control or contain this technology because they still see this technology as similar to any other technology in that sense it's not like this new mythical creature that we cannot contain and then from there let's export it to the world from a very from a high level from a business level I think this is the second point I was going to touch on which is it's been really interesting I think Even a year ago when we spoke on big technology podcast a lot of companies were really really gunning for the US market it was seen as if I want to sell the US market is always going to be the most lucrative enterprise companies are willing to pay blah blah blah you know if we make make it in the US we've made it right that was the like holy grail and there's been a complete change of mind recently when I spoken to quite a few of the leading Chinese products whether they're on like coding agents or what not it's really focused on potentially going to you know Southeast Asia potentially going to Europe because they're saying okay first of all geopolitical headwinds is not like it's no joke it's not going to be easy to sell to us there's obviously a grueling competition in the US domestic market but there's a lot of desire from other markets that want Chinese technology providers they're saying maybe some of them don't want to pay that massive premium in from US tech and maybe some of them are also losing a bit of interest from you know the very scary narratives that they're hearing from the US as well and some and then on top of that many of them are looking to build on top of open source models and they need the support to help them kind of build that you know infrastructure around it. So so it's been very interesting to hear that kind of mentality shift.

9:01 >> Yeah, you also you mean you put it basically the problem for the US closed source or closed model developers. you put it very clearly. The central risk to the Frontier Labs is not that their models suddenly become useless. It's that Frontier level capabilities capability becomes increasingly difficult to monetize at premium prices when openweight alternatives can perform most tasks at a fraction of the cost. I mean, you come at this from a business standpoint. if that becomes the reality, right, then what do you even do if you're a closed source company like a close? You can still you can still charge I think you know for certain government agencies certain companies you know fortune 500s that might have very strict regulation compliance or rules whatever I think for certain sensitive sectors if you were to want to use American tech stack it still makes a lot of sense cuz maybe the money does not is not a main considering factor does that make sense but for a startup forme like every penny matters and you're going to want to f find the best model for your ROI. So I I do think at end of the day majority of the world actually runs in a very pragmatic lens because you got to pay your bills and you got to make sure your business is generating money. So when you are buying for intelligence that intelligence needs to make sense and justify the cost of it. And I think what we saw a couple months ago was a sudden awakening or realization that a lot of the token maxing wasn't making investment sense because you know spending a million dollars per person on token usage is mental when their salary is maybe like 200k and their revenue generation is even lower than that. Do you know what I mean? Like it doesn't make any business sense. So I do think businesses will look at this very differently and it's putting pressure on the closed models. But I think people who are working at the most frontier or even like I'm just pulling a name out of my head, but like a Jane Street, if you're going to spend $2 million per head, but you're going to generate like 20 million on each, you know, bet like or on each investment, then that money is justified to Jane Street probably. But I think, you know, it goes back to how do you justify that