Software King of the World, Microsoft, is warning that US AI outfits are losing ground to Chinese rivals in the fight for users outside the West, helped along by low-cost “open” models and state backing.
Microsoft president Brad Smith told the FT that the rapid uptake of Chinese AI start-up DeepSeek in emerging markets, including Africa, shows how rough the global scrap is getting.
Smith said: “We have to recognise that right now, unlike a year ago, China has an open-source model, and increasingly more than one, that is competitive.”
He argued Chinese outfits have a pricing advantage because Beijing is footing part of the bill.
“They benefit from subsidisation by the Chinese government. They benefit from subsidies that enable [them] to basically undercut American companies based on price,” Smith said.
New Microsoft research said the release of DeepSeek’s R1 large language model a year ago sped up AI adoption worldwide, particularly in the global south, thanks to its “accessibility and low cost”.
That shift, Microsoft claims, has helped China jump ahead of the US in the market for so-called “open” AI models, which developers can often use, tweak and plug in for free.
US tech groups such as OpenAI, Google and Anthropic have instead tried to keep tight control of their most advanced kit, monetising it through subscriptions and enterprise deals.
Based on usage data from Microsoft products, the company estimates DeepSeek has an 18 per cent share of the AI market in Ethiopia and 17 per cent in Zimbabwe.
Smith said African countries will need broader investment from “international development banks” or “lending facilities” to build data centres and subsidise electricity.
“If we rely on private capital flows alone, I don’t think that will be sufficient to compete with a competitor that is subsidised to the degree that Chinese companies often are, especially in those parts of the world,” he said.
IMANI think-tank vice-president Bright Simons said there is no “scientifically rigorous way” to determine whether DeepSeek is forging ahead in Africa, but open-source Chinese systems are a cheaper alternative.
IMANI think-tank vice-president Bright Simons said: “Africans can’t afford very expensive solutions apart from open source, so you have to go to [Meta’s] Llama or Chinese options.”
Microsoft’s research said that where US technology products are limited or restricted, DeepSeek has built a big lead, with a 56 per cent share in Belarus, 49 per cent in Cuba and 43 per cent in Russia.
DeepSeek rattled Silicon Valley when it launched its R1 reasoning model last year, claiming it was trained at a lower cost with less computing power.
DeepSeek is expected to ship its long-awaited new model before the Lunar New Year holiday.
Microsoft’s research said AI adoption remains concentrated in developed countries, with nearly a quarter of the global north using AI in the fourth quarter of 2025, compared with 14 per cent of the global south and 16 per cent globally.
Smith called the widening gap a “cause for concern” and warned that “if we don’t address a growing AI divide, it’s likely to perpetuate and broaden the great economic divide between north and south”.
He said the US-China race is being fought on this front too and wants more private investment in data centres and skills training, as well as backing from governments and financial institutions.
“What we do have is, as American companies, a stronger reputation for trust. We have access to better chips than the Chinese companies do . . . [but] you always have to compete on price,” Smith said.
Smith warned that ignoring AI uptake in regions like Africa could let systems spread that are not aligned with democratic values, which is the sort of lofty hand-wringing that arrives right after the price list.
