BEIJING/HONG KONG, March 25 (Reuters) - China has

narrowed the AI development gap with the United States to just

three months in some areas, because firms such as DeepSeek have

worked out how to use chips and apply algorithms more

efficiently, the CEO of Chinese startup 01.AI Lee Kai-fu said.

Lee, a prominent figure in the global artificial

intelligence space and a former head of Google China, told

Reuters that startup DeepSeek revealed that China had pulled

ahead in areas such as infrastructure software engineering

DeepSeek shook the global AI industry when it launched an AI

reasoning model in January that it said was trained with less

advanced chips and was cheaper to develop than its Western

rivals. The announcement challenged the assumption that U.S.

sanctions were holding back China's AI sector.

"Previously I think it was a six to nine month gap and

behind in everything. And now I think that's probably three

months behind in some of the core technologies, but actually

ahead in some specific areas," Lee said in an interview in Hong

Kong.

Washington's semiconductor sanctions were a "double edged

sword" that created short term challenges but also forced

Chinese firms to innovate under constraints, he added, pointing

out how Chinese companies had developed their algorithms.

"The fact that DeepSeek are able to figure out the chain of

thought with a new way to do reinforcement learning is either

catching up with the U.S., learning quickly, or maybe even more

innovative now," Lee said, referring to how DeepSeek models show

users their reasoning process before delivering answers - a

capability first developed by OpenAI but not released to users.

China's tech sector jumped into the global race to develop

generative AI soon after the launch of OpenAI's ChatGPT in late

2022 but until DeepSeek's launch, many of the country's tech

leaders said they were far behind Western counterparts.

Lee, who also runs his own venture capital firm, founded

01.AI in March 2023, joining other new AI startups such as

ZhipuAI and Moonshot as well as Chinese tech giants Baidu ( BIDU ),

Alibaba and ByteDance in building foundational models.

Lee said investing in proprietary models had become

"courageous" for AI startups in a market environment dominated

by well-funded tech giants and rapidly evolving open-source

alternatives.

He said 01.AI will instead focus on practical AI

applications - software solutions that help clients better

deploy foundational models, he said.

Earlier this month, 01.AI launched Wanzhi, a new software

platform that helps enterprises deploy AI technology. The

company has already begun generating revenue and projects growth

for 2025 to several times the $15 million achieved last year,

Lee added.