China AI labs face growing open-source dilemma

HONG KONG, March 25 (Reuters Breakingviews) - To open-source or not may soon be the trickiest question facing China’s top artificial intelligence companies. The $300 billion Alibaba (9988.HK), opens new tab and compatriots made most of their models free ​and available for anyone to use, which in turn has accelerated innovation and adoption across the country. Even U.S. ‌firms have benefitted. But mounting investor pressure to generate a profit, as well as geopolitical pressures, may prompt a rethink to prioritise proprietary breakthroughs instead.

This week, buzzy San Francisco-based coding startup Cursor AI acknowledged, opens new tab its latest “frontier-level” model was built on an open-source one owned by up-and-coming Chinese AI lab Moonshot. It’s an awkward situation: Cursor, ​backed by heavyweights including Andreessen Horowitz and Google (GOOGL.O), opens new tab, is in talks to raise funds at a $50 billion valuation, Bloomberg reported this ​month, citing sources. That’s nearly double the worth it secured in November and more than two and a ⁠half times that of Moonshot, opens new tab.

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It also underscores a new reality in Silicon Valley and beyond: startups and more established companies alike are increasingly ​eschewing pricey proprietary models from OpenAI and others for free or low-cost Chinese versions which are rapidly closing the performance gap despite Washington’s export ​curbs and sanctions. Rankings on OpenRouter, a platform that lets developers access and use different models, currently show 7 of the 10 most popular offerings are Chinese; companies from Airbnb (ABNB.O), opens new tab to German industrial giant Siemens (SIEGn.DE), opens new tab have made no secret about using models from the People’s Republic.

Chinese tools, however, now have a target on their ​back. On Monday, the U.S.-China Economic and Security Review Commission published a report, opens new tab warning that China’s open-source successes “reflect a more fundamental challenge to U.S. ​AI supremacy”. And last month, OpenAI and Anthropic separately accused Chinese AI labs like DeepSeek of improperly using U.S. models to improve their own; both have ‌called ⁠for tougher restrictions on U.S. tech.

There is a simple reason for Chinese companies to pivot away from open-source: Alibaba, Tencent (0700.HK), opens new tab and rivals are under increasing pressure to show they can monetise their AI models and applications. The e-commerce group last week even went as far as laying out a goal of surpassing $100 billion in annual revenue from cloud computing and AI customers over the next five years. Alibaba has reaffirmed its commitment ​to open-source, but reaching that lofty ​target will require devoting more ⁠resources to its high-end proprietary offerings - possibly at the expense of its open-source Qwen models.

Keeping more Chinese innovations behind closed doors may even suit officials in Beijing, who are increasingly anxious that the country is losing its ​best and brightest entrepreneurs. The world may soon see fewer free Chinese models.

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CONTEXT ​NEWS

An executive from U.S. ⁠artificial intelligence coding startup Cursor acknowledged on March 21 that the company’s latest model, the Composer 2, “started from” Chinese open-source model Kimi 2.5, after claims from a developer posting on X.

In November 2025, Cursor announced it had raised $2.3 billion at a post-money valuation of $29.3 billion. Its investors include Accel, Thrive, Andreessen ⁠Horowitz, Nvidia, ​Google and Coatue. The company is currently in talks to raise more funds at a $50 ​billion valuation, Bloomberg reported on March 12, citing sources.

Moonshot, which owns the Kimi model and chatbot, is raising funds at a target valuation of $10 billion, Bloomberg reported in February, ​citing sources. Its existing backers include Tencent and Alibaba.

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Editing by Una Galani; Production by Aditya Srivastav

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Robyn Mak

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Robyn Mak joined Reuters Breakingviews in 2013. Previously, she was a Research Associate for the Global Policy Programs at the Asia Society in New York. She has also worked at the Carnegie Endowment for International Peace in Washington DC and interned at several consulting firms, including the Albright Stonebridge Group. She holds a masters degree in international economics and international relations from the Johns Hopkins School of Advanced International Studies and is a magna cum laude graduate of New York University.

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