Predicting the Next ‘DeepSeek Event’: Early Indicators of Capability Within the PRC’s AI Ecosystem

Executive Summary:

• Predicting artificial intelligence (AI) firm DeepSeek’s recent successes within a highly competitive AI ecosystem may have been possible by observing factors such as government recognition, proximity to top-tier national research institutions, and a complex network of corporate affiliates with proven technology expertise.
• Indicators of ties to the Party-state include DeepSeek’s Beijing arm being named one of thirty “main drafting units” for a national data security standards plan in 2023 and the designation of DeepSeek affiliate High-Flyer Technology as a national “high-tech enterprise” in 2020 and 2023.
• DeepSeek has built a strategic presence in Beijing, a leading hub for AI research, despite being headquartered in Hangzhou. This has fueled online speculation that it benefits from state support.
• External validations of High-Flyer/DeepSeek’s growing capability marked DeepSeek as a sophisticated innovator well before the market-shifting release of its R1 open source model.

DeepSeek (深度求索), a research firm devoted to artificial general intelligence (AGI) development, has rapidly built a reputation as a disruptive innovator. The company is primarily backed by quantitative hedge fund High-Flyer Quant (幻方量化), whose early successes saw its assets under management reach RMB 100 billion ($13.8 billion) by 2021 and led to substantial investments in AI research and computing clusters. Directly related to its incubation within High-Flyer’s high-tech operational space, DeepSeek is also part of a broader corporate structure that includes subsidiaries and other related entities based in major AI hubs across the People’s Republic of China (PRC) (Yicai Global, April 17, 2023; The Paper, January 22). [1]

DeepSeek claims to have spent under $6 million on training its latest large language model (LLM) while using just over 2,000 Nvidia H800 chips—a fraction of the cost spent by U.S. competitors (arXiv, December 26, 2024; South China Morning Post, January 28). Elements of this story have been challenged, but ongoing focus on DeepSeek’s traits as a uniquely disruptive company distracts from analysis of preceding events which, in retrospect, should have served as early indicators of the break-out to follow. In the case of DeepSeek and parent company High-Flyer, these included: government recognition, proximity to top-tier national research institutions, and a complex network of corporate affiliates with research and development capacity.

DeepSeek’s advances in AI architecture and training did not, therefore, emerge in a vacuum. Likewise, the signal moment of CEO Liang Wenfeng’s (梁文锋) appearance in a recent consultative meeting with PRC premier Li Qiang (李强), though noteworthy, was just one in a series of events indicating High-Flyer/DeepSeek’s recognition as an innovative firm by the PRC government (Science and Technology Daily, January 14; Xinhua, January 20).

What role external factors such as Party-state validation—typically an indicator of financial and operational support—may have played in DeepSeek’s rapid transition from start-up to industry leader is debatable (Macro Polo, August 14, 2019; China Brief, February 17, 2023). But in a competitive AI ecosystem such as that of the PRC, these markers of success encode a double meaning. As a relational entity within a broader ecosystem of state and corporate institutions, High-Flyer/DeepSeek’s partnerships, strategic location, and track record of technology leadership all reflected trust and reputational strength among key players. The next “DeepSeek event” is likely to be triggered by a company embedded in a similar network of beneficial affiliations.

DeepSeek Entities Located in Strategic AI Hubs

DeepSeek’s corporate structure reflects its expansion across key innovation hubs in the PRC, particularly Beijing.

Company recruitment materials identify “DeepSeek” as a “brand (品牌)” of Beijing DeepSeek AI Foundational Technology Research (北京深度求索人工智能基础技术研究; “Bejing DeepSeek”), which employs 100–499 people (Zhipin, accessed February 7; Jiyouji, accessed February 7). Beijing DeepSeek was established in May 2023, and was followed by the incorporation of Hangzhou DeepSeek AI Foundational Technology Research (“Hangzhou DeepSeek”) one month later. Hangzhou DeepSeek holds full ownership of its Beijing counterpart, and both entities share the same legal representative.

DeepSeek has an integrated dual-hub structure, with contributions from Beijing DeepSeek, based in Zhongguancun in the city’s Haidian district, supporting its Hangzhou counterpart’s operations. Zhongguancun is a prime AI research and development (R&D) hub populated by major universities, research institutions, and high-tech corporations. In November 2023, High-Flyer AI secured a 2,000 square meter research facility there, at an address shared with Google, Intel, Alibaba Software Services, and Chinese Academy of Sciences (CAS) Venture Capital Management (Sina Finance, November 3, 2023).

DeepSeek’s intellectual property is derived from five companies (IPR Daily, January 28):

• Beijing DeepSeek;
• Hangzhou High-Flyer AI Foundational Research;
• Hangzhou High-Flyer Technology;
• Ningbo Jimi Information Technology (宁波积幂信息科技);
• Shanghai Jimi Information Technology (上海积幂科技). [2]

Beijing DeepSeek could be the company’s true AI headquarters, where its core technology is developed (Wangda TOP, January 27). This claim comes from online forums and has not been substantiated. But it would fit both with claims that Beijing DeepSeek’s team is heavily comprised of researchers trained at Tsinghua University—the country’s top institution—and with recruitment announcements for DeepSeek positions in Beijing, which offer “top GPU cluster computing power support (顶尖 GPU 集群算力支持)” (LinkedIn, September 2024).

Seeking State Connections Misses the Network for the Nodes

Liang Wenfeng’s appearance before the State Council is the most recent instance of his firm’s recognition by Beijing, but its track record of official validation goes back much earlier.

In 2020, DeepSeek predecessor Hangzhou High-Flyer Technology (杭州幻方科技) was designated a national “high-tech enterprise (高新技术企业)” by the Ministry of Science and Technology (MOST), a designation it received again in 2023, along with recognition from the Hangzhou government as an “innovative medium and small enterprise” (MOST, 2020; December 8, 2023; Hangzhou S&T Enterprise Knowledge Transformation Platform, February 5, 2024). [3] Beijing DeepSeek was also designated one of thirty “main drafting units (主要起草单位)” for a 2023 national standards plan overseen by the National Standardization Management Committee, titled “Data Security Technology—Security Requirements for Automated Decision-Making Based on Individual Information (数据安全技术 基于个人信息的自动化决策安全要求)” (Standardization Administration of China, March 21, 2023).

Online forum users have also speculated that DeepSeek may also have ties to the Chinese Academy of Sciences (CAS; 中国科学院). In a post to a university community group, one user noted that Beijing DeepSeek’s address, No. 2, Academy of Sciences South Road (科学院南路) in the city’s Haidian District, was adjacent to the CAS Computing Technology Institute based at No. 6 on the same street (Sina Finance, November 3, 2023; Shuimu shequ, January 2025; CAS ICT, February 3). Users in an overseas student forum also have debated whether CAS—the “national team (国家队)”—was behind DeepSeek (New Anonymous Space, January 2025).

No available evidence confirms these claims. Instead, they serve as reminders that DeepSeek’s opaque internal structures still connect outward to a broader—and deeply talented—AI developer community, and that the capabilities of private companies may in fact exceed those of state institutions. The website of DeepSeek’s parent company describes a proposed project to make its computing resources available to “qualified scientific research teams (符合条件的科研团队).” Application forms for the project are available for download (High-Flyer, accessed February 7).

Notes

[1] By 2021, High-Flyer had invested over RMB 1 billion ($137 million) in Firefly-1 and Firefly-2 computing clusters, according to information from the company’s website and WeChat posts (Reuters, January 29). Its initial investment in DeepSeek may have totaled an additional RMB 3 billion ($410 million) (21st Century Business Herald, July 19, 2024). However, industry estimates put DeepSeek’s total capital investment in servers closer to $1.6 billion prior to the R1 model’s release in late January (Tom’s Hardware, February 2).

[2] According to PRC media reports, Ningbo Jimi Information Technology is also controlled by High-Flyer co-founder Liang Wenfeng (Wall Street China, March 3, 2023).

[3] High-tech enterprise designations make companies eligible for a range of government support measures, including special facilities, talent recruitment, tax breaks, funding, export assistance, and eligibility for government procurement. 8,463 companies in Zhejiang received certifications as “high-tech enterprises” in 2020. That number increased to 13,191 in 2023. The Hangzhou “innovative medium and small enterprise” designation was awarded to 1,273 companies in addition to Hangzhou High-Flyer.