[Insight & Opinion] Why Doesn't a Company Like DeepSeek Emerge in South Korea?

Despite Reduced Development Costs and Security Vulnerabilities
A Case of China's AI Ecosystem and Digital Advancement
An Opportunity to Reexamine South Korea's Startup Environment

It has been a month since the Chinese startup 'DeepSeek' announced the 'DeepSeek R1' on January 20, causing a whirlwind in the global AI industry, yet the DeepSeek shock continues. The DeepSeek shock began when it surpassed Chat GPT in free downloads to rank number one on app stores in the US, UK, Australia, Canada, and other countries. Moreover, DeepSeek revealed that it delivers performance comparable to OpenAI's Chat GPT while its development cost is only about one-tenth of Chat GPT's, raising concerns about the excessive bubble in AI investments by major US tech companies. As a result, on January 27, there was a significant crash in AI chip-related stocks.

Meanwhile, despite criticisms that the disclosed development costs were significantly underestimated and concerns about security vulnerabilities, leading to download bans in the US, South Korea, and several other countries, the DeepSeek shock has sparked public debate on the bubble in astronomical development costs of US AI companies and the effectiveness of the US government's semiconductor export restrictions to China. Notably, from a technological perspective, unlike OpenAI, DeepSeek operates as an open-source structure that allows general users to download and modify the program, drawing attention to potential shifts in the AI industry landscape.

However, apart from this AI industry-level shock, there is another aspect of the DeepSeek shock that South Korea should pay attention to. First, DeepSeek is a startup established only 20 months ago in July 2023 in Hangzhou, China, by Liang Wenfeng (梁文鋒), the operator of the hedge fund 'High-Flyer.' Second, the 86 researchers listed in the technical report of DeepSeek R1 are all domestically trained within China. Third, to avoid research constraints due to repayment burdens when using government development funds, DeepSeek fully funded its development costs with its own capital. Fourth, Liang Wenfeng has stated that the US semiconductor export controls were 'the biggest challenge trigger.' Due to the US government's ban on exporting advanced AI semiconductors, Chinese AI companies faced the necessity to improve operational efficiency while using fewer lower-performance older chips, choosing to strengthen the role of software as an alternative strategy. Fifth, in an interview, Liang confessed that when Chat GPT was announced, the Chinese AI industry was disheartened by the huge gap with the US, but he founded DeepSeek driven by a belief in innovation.

Among these five aspects, except for funding, the other four highlight that the patriotic passion for technological innovation by Liang Wenfeng and his research team to overcome US pressure on China was both the motivation and core asset. Furthermore, China has a robust AI ecosystem, including the well-known so-called 'Liu Xiaolong (Six Little Dragons),' and a digital industry that accounts for 9.9% of the 2023 Gross Domestic Product (GDP), according to the National Bureau of Statistics of China.

Why does South Korea not produce world-class innovative companies like DeepSeek? The answer lies in the fact that while China's IT industry is rife with the '996 work system' (12 hours a day, 6 days a week), South Korea prohibits exceeding 52 working hours per week even in semiconductor industry research and development (R&D). The 'Korean Startup Ecosystem' report points out that the small scale, business models oriented toward the domestic market, and tight government regulations in the ecosystem prevent startups from leading global innovation. The DeepSeek shock urgently calls for the government to reexamine the startup ecosystem issues from the ground up.

Kim Dongwon, Former Visiting Professor at Korea University