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Domestic AI competition: Is DeepSeek a competitor or catalyst to Chinese AI firms?

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  • Ge, Jiaying
  • Yang, Xing

Abstract

Using DeepSeek’s artificial intelligence (AI) breakthrough as a significant event, this study examines how Chinese AI firms respond to domestic disruptive competition. We find an inverse U-shaped market reaction: initial declines due to competitive concerns, medium-term gains driven by innovation hype, and long-term reversals as optimism fades. Firms with stronger R&D capacity exhibit sustained positive returns, while state-owned enterprises (SOEs) underperform despite short-term policy-driven gains. These findings highlight that sustained AI sector growth requires more than headline innovation—it hinges on robust R&D infrastructure and institutional agility.

Suggested Citation

  • Ge, Jiaying & Yang, Xing, 2025. "Domestic AI competition: Is DeepSeek a competitor or catalyst to Chinese AI firms?," Finance Research Letters, Elsevier, vol. 85(PB).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pb:s1544612325012632
    DOI: 10.1016/j.frl.2025.108005
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    References listed on IDEAS

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