Microsoft warns of China's dominance in emerging markets

In the race for AI users in emerging markets, Microsoft sees the USA falling behind – China is undercutting American providers in price through massive state subsidies. Microsoft President Brad Smith, considered the company's top strategist for policy and law, urges in the Financial Times for investments from international development banks so that China cannot further expand its growing position.

We must recognize that a year after the “DeepSeek shock,” when China suddenly presented an affordable, competitive AI reasoning model, China has more than just a competitive AI model. However, with state support, this enjoys advantages over purely private sector ones from the USA.

DeepSeek has achieved a market share of 18 and 17 percent respectively in countries like Ethiopia and Zimbabwe. In states subject to US restrictions, the share is even higher: in Belarus, for example, according to Microsoft's figures, it is 56 percent, in Cuba 49 percent, and 43 percent in Russia.

Keep US companies' backs free

As early as the beginning of 2025, Smith mentioned the growing competition in a blog post on the Microsoft website. At that time, he spoke of a “golden opportunity for American AI.” The text, which contains many nods to the Trump administration, draws a parallel to the events in the mobile communications market a few years ago. At that time, the Chinese government had also helped the network equipment supplier Huawei achieve a dominant position through subsidies. American companies were overtaken, and Huawei's technology was eventually perceived as a security risk.

Smith explicitly does not want public funds for American AI companies. However, the government must keep US companies' backs free in terms of regulation and make export controls pragmatic so that they can counter Chinese AI. According to Smith, Microsoft itself invested around 80 billion dollars in AI data centers worldwide in fiscal year 2025 – more than half of which was in the USA.

Waiting for new model from DeepSeek

Besides availability, costs are likely to play a major role in DeepSeek's success. US providers like OpenAI, Google, and Anthropic rely on proprietary AI models with subscriptions. China, on the other hand, offers open-source models – a strategy the country has adopted to counteract sanctions, such as those imposed on Huawei. African users, lacking purchasing power, are turning to open-source models like DeepSeek, Meta's Llama, or local models.

The competition could intensify further when DeepSeek releases its new model. This is expected before the Chinese New Year, which is celebrated on February 17th.

(mki)