The global AI race has reached a critical juncture, with fierce competition between the United States and China. The European Union was deemed ‘Missing in Action’ until this week when the AI Action Summit in Paris saw the EU put cash on the table and vow to deregulate.
Adding to the urgency for Europe, a potential AI alliance between China and Russia looms on the horizon.
At the start of this year, DeepSeek, a small Chinese startup, shocked the AI industry by developing an advanced model that rivals those of OpenAI and Google–at a fraction of the cost and without access to cutting-edge US chips.
This breakthrough sparked debate over whether DeepSeek had achieved its “Sputnik moment”, although a commentary by the Centre for Strategic and International Studies (CSIS) suggests that the AI race is iterative rather than defined by singular moments of dominance.
Nonetheless, the development triggered a major sell-off of US AI stocks, with Nvidia alone losing over $600 billion in market value. While the US had believed its strict export controls on AI chips to slow China’s progress, DeepSeek’s success suggests these measures may have backfired.
World-class AI at minimal cost
DeepSeek’s achievement casts doubt on the necessity of massive AI investments by Western governments and corporations, including Trump’s $500 billion Stargate initiative, argues an analysis of the Centre for European Policy Analysis (CEPA).
It raises the question of whether such enormous spending is necessary when a small startup can develop world-class AI at minimal costs. While some remain sceptical, others argue that second movers like DeepSeek can replicate and optimise existing AI technologies far more efficiently than pioneers like OpenAI.
A key point of contention is DeepSeek’s fully open-source model, which stands in contrast to the proprietary models of US tech giants. If regulators impose excessive restrictions on open-source AI, China could gain a long-term strategic edge, with American developers eventually relying on Chinese AI infrastructure.
The company’s ascent also highlights growing scrutiny over AI safety policies in the West. As US and European regulators focus on transparency and mitigating risks, DeepSeek’s model reportedly refuses to answer politically sensitive questions–raising concerns about the balance between open-source AI development and regulatory oversight.
Europe running out of time
An analysis of the Centre for European Policy Studies (CEPS) warns that intensifying US-China AI competition should serve as a wake-up call for Europe. AI is rapidly becoming the foundation of future geopolitical and economic power, yet the EU risks falling behind if it does not respond decisively.
The US is reshaping AI competition into a winner-takes-all game. With massive investments in AI research and infrastructure already announced, some analysts said the US was too far ahead for Europe to catch up.
Then came Paris. Speaking at the AI Summit, European Commission President, Ursula von der Leyen unveiled the EU’s ambition to mobilise a total of €200 billion for AI investments in Europe.
She told world leaders, “[The EU] will have a focus on industrial and mission-critical applications. It will be the largest public-private partnership in the world for the development of trustworthy AI.”
Fine in theory.
To stay competitive, Europe must now significantly scale up its AI strategy by reforming financial regulations, mobilising public and private capital, and prioritising technological sovereignty.
Without bold action, Europe could cede technological leadership to a US-China duopoly, diminishing its ability to shape global AI standards.
Russia eyes China for AI collaboration
While Europe debates the definition of AI in EU law, a new collaboration is taking shape.
Russia’s largest bank, Sberbank, plans to work with Chinese researchers on AI projects, including those with military applications. The full scope of this collaboration remains yet unclear, but it signals deepening AI ties between the two nations.
Sberbank’s GigaChat MAX model has performed competitively in banking applications, according to internal evaluations. Like DeepSeek, Sberbank has embraced an open-access model for its AI platforms, arguing that transparency accelerates innovation by attracting a large developer community.
As geopolitical tensions rise and both China and Russia face sanctions, their AI ambitions could further challenge Western dominance. More importantly, their leaders see eye-to-eye when it comes to the West as decadent and in decline, while China challenges US supremacy on multiple fronts.
Can France turn the tide?
To counter this, in addition to von der Leyen’s €200 billion launch of InvestAI, which includes €20 billion dedicated to establishing four AI gigafactories for training advanced models, Europe is leveraging the EU AI Champions Initiative, which is comprised of over 60 European companies, spearheaded by General Catalyst.
This €150 billion venture seeks to accelerate AI adoption in various industries over the next five years, advocating for streamlined AI regulations to foster innovation while ensuring safety.
These announcements follow French President Emmanuel Macron’s declaration that private investors will inject €100 billion into France’s AI sector. This move is perceived as a strategic counter to the U.S. Stargate initiative, which plans to invest over $500 billion in AI infrastructure.
Whether these efforts will be enough to counterbalance the dominance of the US and China remains to be seen.
[Edited By Brian Maguire | Euractiv’s Advocacy Lab ]
