Hong Kong (CNN) — Remember DeepSeek? The Chinese artificial intelligence startup that rattled the US tech industry with its model that nearly matched leading rivals, trained at a fraction of the cost.China may have done it again.The latest Chinese AI model making waves was developed by a lesser-known startup called Moonshot AI. In just two days after launch, Moonshot suspended new subscriptions after demand overwhelmed its computing capacity.The unexpected enthusiasm for Moonshot’s Kimi K3 model stems from its ability to match – and in some cases outperform – its most advanced US competitors, such as the latest iterations of OpenAI’s GPT and Anthropic’s Claude, for free.Now its rise is intensifying an already contentious race between the US and China to dominate cutting-edge AI. Washington has ramped up export restrictions against China in recent years to slow the country’s development of AI and chips that could power its military.After Kimi K3 was released, US officials and Anthropic have again accused Moonshot of distilling American models, a technique in which one AI model is trained using outputs from another. Moonshot has denied the allegations.Still, the fears spreading among US companies and government officials underscore the stakes of the AI rivalry, and its far-reaching implications for economy, defense and national security.More broadly, Kimi K3’s capabilities are renewing questions about the effectiveness of Washington’s tech export curbs. The new model also challenges an industry belief that leading-edge AI requires heavy spending on data centers and the advanced chips that the US has restricted access to.Unlike most American proprietary models, Kimi K3 was released as an open-weight model. That allows developers to download it, modify it, and run it on their own servers for free, positioning it for easier adoption and a wider market globally.Constrained by limited access to AI hardware and investment compared with American firms, China has embraced so-called “open” models, in contrast to US rivals that mostly sit behind paid subscriptions.“Many organisations value the ability to self-host open models, allowing them to retain the weight and control over sensitive data instead of relying solely on closed-model providers,” said Chelsey Tam, senior equity analyst at financial services firm Morningstar.Who is behind China’s latest AI breakthrough?Moonshot AI was founded three years ago by Yang Zhilin, a promising software engineer in his early 30s from China’s Southeastern city of Shantou.He demonstrated potential early on when studying at Tsinghua University, China’s most elite engineering school, under Tang Jie, a professor who would go on to found another prominent AI startup Z.ai in 2019.“He is the most talented and exceptional student I’ve encountered in recent years,” Tang said while recommending Yang for a scholarship in 2014.Yang went to Carnegie Mellon University for his PhD in computer science at under Ruslan Salakhutdinov, a former AI executive at Meta and Apple. By the end of his studies, Salakhutdinov recalled, Yang turned down a job offer by a senior Apple executive who reported directly to Tim Cook.“I remember him telling me that if he didn’t at least try starting his own company, he would regret it for the rest of his life. I respect that, and he was right,” Salakhutdinov said in a post on X.Yang later said the decision came down to two things. “First was the environment. We saw tremendous opportunities, from government and venture-capital support to the advances China had made in education over the past few decades, all of which created favorable conditions for AI startups,” he told state-run media in 2024. “Second, we believed AI represented a massive opportunity.”Yang stood out in China’s AI industry not only for founding Moonshot at the age of 32, making him one of the country’s youngest AI entrepreneurs, but also for choosing to return to China to launch his venture.From the start, Yang had grand ambitions. He told a podcast in 2024 that the startup’s name was a nod to his favorite album by British rock band Pink Floyd, “Dark Side of the Moon,” in the hope that it would “accomplish something that would create enormous value but would also be extremely difficult — much like landing on the moon.”Moonshot quickly reached national fame after releasing its first Kimi model – named after Yang’s English name – in 2023. That same year, Moonshot secured nearly $300 million in its first two funding rounds, according to a 2024 interview with Chinese media.Is it another ‘DeepSeek moment’?The international attention that Kimi K3’s has garnered echoes the rise of DeepSeek in early 2025, when its R1 reasoning model sent shockwaves through the global AI community.This time, K3 delivered performance approaching frontier systems such as OpenAI’s GPT 5.6 Sol and Anthropic’s Claude Fable 5 on various benchmarks, further narrowing the gap between Chinese and American AI models.But analysts say Moonshot’s achievement should be viewed through a different lens.DeepSeek challenged the conventional wisdom that developing an advanced AI model requires massive financial investment and vast computing power, and offered competitive pricing.But K3’s discount to frontier models is much smaller than R1’s was at launch, suggesting its cost advantage may be less significant than DeepSeek’s, according to Ivan Su, director at Morningstar.What K3 demonstrates is that Chinese companies are continuing to build on the success of DeepSeek, and close the gap between Chinese and US AI models, said Poe Zhao, analyst and founder of the newsletter Hello China Tech.“Its broader significance is that DeepSeek increasingly looks like the beginning of a pattern,” he said. “DeepSeek was a surprise. K3 is evidence that China’s progress is becoming more repeatable.”Since DeepSeek, Chinese AI firms like Moonshot, Alibaba and Z.ai are getting more attention for each new model, with the pace of the rollouts speeding up.With K3, Wei Sun, principal AI analyst at market analysis firm Counterpoint Research, said the general gap between Chinese and American models has narrowed to three to six months, though it varies significantly by task.Still, other analysts have expressed reservations toward K3’s true capabilities.“While K3 constitutes progress, we’d hesitate to ascribe it near-parity with American frontier models, such as Fable 5, in real-world tasks,” said Malik Ahmed Khan, senior equity analyst at Morningstar in a research note last Friday. Many open model developers have optimized software performance around benchmarks for better results in the past, he explained.Is it a threat to the US?For American tech companies, free and comparable Chinese models like K3 threaten to undermine their own products.Leading US AI firms Anthropic and OpenAI have long accused Chinese labs, including Moonshot, DeepSeek and Alibaba, of extracting capabilities from their models. Those claims have intensified with the arrival of K3.Huang Zhenxin, Moonshot AI’s head of enterprise business, denied the accusations of distillation in an interview with state-run media on Monday.But that has not stopped new allegations from Washington.“We have information that Moonshot AI distilled Anthropic’s Fable for the development of its K3 model,” said Michael Kratsios, Director of the White House Office of Science and Technology Policy, in a Wednesday post on X. “Large-scale, covert industrial distillation aimed at stealing proprietary U.S. technology and undermining American research is unacceptable.”Sarah Heck, Anthropic’s policy head, echoed Kratsios in an X post that accused Moonshot of engaging in “IP theft and industrial espionage,” calling it a “national challenge that creates serious national security risks.”CNN has reached out to Moonshot for comment.Treasury Secretary Scott Bessent also reiterated Wednesday that the US could sanction Chinese firms over such IP theft, without mentioning Moonshot or others by name.“When PRC firms conduct covert, industrial-scale distillation attacks that cross the line into IP theft, sanctions and Entity List designations will be on the table,” he said on X, referring to the country’s formal name People’s Republic of China.Most analysts, however, found the distillation accusation against Moonshot unlikely.Sun of Counterpoint said Moonshot would not have had enough time to train its AI model with its rivals’ latest models, which had limited availability before K3’s launch. And distillation alone would not account for Kimi K3’s outperformance, she added.“The timeline is unconvincing,” she said.The-CNN-Wire™ & © 2026 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.
