This paper examines China’s evolving artificial intelligence (AI) development and governance, highlighting the interaction between state-led strategies, private sector innovation, national security priorities, AI safety concerns and global AI competition. Chinese companies’ strategic focus on industrial applications, combined with a lower business risk tolerance and a short-term profit orientation in the country’s innovation culture, helps explain why China was not among the first to achieve major breakthroughs in generative AI. Progress since its 2017 national strategy for AI development has focused on rapid application, commercialization and industry-specific use cases — rather than on foundational innovation. DeepSeek’s breakthrough revealed both the progress and the structural limitations within China’s innovation ecosystem; however, its success may be the exception rather than the norm in China. Following ChatGPT’s debut in 2022, China tightened regulatory controls on AI development. China’s current AI governance approach emphasizes balancing development with security. Despite restrictions, models such as DeepSeek V3 continue to perform competitively on technical benchmarks. Amid intensifying US-China tech competition, DeepSeek’s emergence challenges the effectiveness of Western export controls and signals China’s resilience in navigating technological restrictions. Nevertheless, the uniqueness of its success highlights the innovation gap that persists beneath China’s impressive AI advancements. Without systemic reform to encourage more foundational innovation, China’s position in the global AI landscape may remain reactive — strong in application but lagging in invention.
