SAN FRANCISCO – In mid-June, artificial intelligence company Anthropic shut down its two most powerful AI systems after an unexpected demand from the US government to cut access to them.
Days later, a Chinese start-up, Z.ai, released an AI model that is nearly as powerful as Anthropic’s models, Fable and Mythos. But Z.ai’s new technology costs much less to use, and no one in the United States was putting restrictions on it. It quickly landed on a closely watched leaderboard of the world’s 10 most popular models.
Z.ai is on the cutting edge of a wave of powerful but inexpensive AI from China that is challenging the lock that OpenAI, Anthropic and Google have had on the industry. Six of the models now on the AI leaderboard were developed in China.
Z.ai’s new model, GLM-5.2, arrived just as US businesses realised that they had to find ways to cut down on how much they were spending on AI. It also landed when executives in Silicon Valley were becoming worried that the Trump administration was leaning toward regulating the technology.
“With Fable restricted, the gap between the US and China is very slim,” said Rehaan Ahmad, a co-founder of the Silicon Valley start-up alphaXiv, who has been using Z.ai’s new model for more than a week.
The Chinese models still face two big hurdles to widespread use in the US: Concerns about their ties to the Chinese government and complaints that Chinese companies have unfairly used US technology to build these cheaper models. But their low cost is winning converts.
About 18 months ago, Chinese start-up DeepSeek shocked Silicon Valley when it demonstrated that it could build effective AI far more affordably than many of its American counterparts. Z.ai is doing something similar. When performing certain tasks, GLM-5.2 costs about an eighth as much as Anthropic’s Claude Opus 4.8, which came out shortly before Fable and Mythos, according to OpenRouter, a start-up that runs the AI leaderboard.
Like most top-performing Chinese models, GLM-5.2 is open source software, which means anyone can use and modify it for free. That makes it much cheaper to use, even if it is not quite as powerful as what US companies have created.
“Do you need to drive a Ferrari everywhere?” asked Vivek Ramaswami, a start-up investor at Madrona Venture Group. “Probably not.”
Z.ai did not respond to requests for comment.
GLM-5.2 is particularly good at generating computer code and powering AI agents, digital assistants that can use other software to perform tasks. Z.ai’s technology is now the third most widely used in the world for AI tasks, said Anastasios Angelopoulos, CEO of ArenaAI, which tracks millions of AI users.
The largest cloud computing providers, including Microsoft and Amazon, already offer access to some systems from Z.ai, DeepSeek, MiniMax and other Chinese start-ups. Microsoft has also considered adding the latest DeepSeek model as an option to power one of its own products, which now runs on technology from Anthropic and OpenAI, two people familiar with the deliberations said, speaking on condition of anonymity because they were not authorised to discuss them publicly.
The talks were reported earlier by Axios.
Microsoft, Anthropic and OpenAI declined to comment.
Some software developers are reluctant to use the AI system that Z.ai offers from computers in China, because they worry about sharing data with the company or with the Chinese government. They are also wary of China’s efforts to censor its AI systems or running afoul of US export restrictions.
Z.ai was added to the US Commerce Department’s trade blacklist in 2025. Corporate filings show that several of the company’s shareholders are controlled by a Chinese government agency that supervises the country’s defence industry.
Companies can still use the model without sending data back to China in violation of US export rules, as long as they are careful about how they set up their systems, said Wei Chen, chief legal officer at Infoblox, a network security company.
“The Chinese models do not have the same restrictions if you host them yourself or you go through another provider,” Ahmad of alphaXiv said. “Right now, there are more restrictions on models from Anthropic.”
After DeepSeek’s release in 2025, governments around the world passed regulations limiting its use because of data security concerns. But so far, GLM-5.2 has not raised similar alarms, Chen said.
Anthropic and OpenAI have accused Chinese companies of improperly harvesting data from their AI systems to accelerate the development of the Chinese technology. On June 10, Anthropic sent a letter, viewed by The New York Times, to US Senators Tim Scott and Elizabeth Warren, accusing Chinese tech giant Alibaba of “brazenly” and “illicitly” trying to copy its technology through 24,000 fraudulent accounts.
Alibaba declined to comment.
When Mustafa Suleyman, the head of Microsoft’s AI lab, unveiled a suite of new models in June, he emphasised that they had been built from scratch on data that the company had commercially licensed.
“That means that you can put it into production in a very trustworthy way with complete confidence,” he said.
The Times has sued OpenAI and its partner, Microsoft, accusing them of copyright infringement of news content related to AI systems. They have denied those claims.
Using data from one system to train another – a process called distillation – is common in AI development. But the Anthropic and OpenAI terms of service forbid anyone to surreptitiously harvest data for distillation. It is not clear whether Z.ai used distillation in the development of its technology.
But distillation alone cannot build a top AI system. That requires several other complex techniques as well, said Charles O’Neill, head of model training at Baseten, a company that sells access to GLM-5.2.
“This narrative that all of the capabilities of these models are coming from Anthropic is not as true as people say it is,” O’Neill said.
Chinese AI start-ups can offer their models as an open-source technology at far lower prices in part because the industry has benefited from years of support from the Chinese government, which views AI as a critical engine of economic growth.
Many executives have said US companies should not open-source their technology because it could be used in harmful situations. But other experts argue that if regulators stifle open-source technology in the United States, China will gain a significant edge.
Because China produces most of the top-performing open-source systems, they say, US developers will build their software atop those technologies. In the long run, that could put China at the heart of AI development.
Some argue that Chinese systems will always trail the top US models because US export controls limit the flow of the specialised computer chips needed to train AI technologies. Z.ai and other Chinese start-ups spend millions for access to chips in data centres outside China.
Z.ai’s filings in Hong Kong show that in the first half of 2025, the company spent more than seven times its revenue on expenses that essentially boiled down to fees for such computing services.
Still, experts estimate that China is just six months or less behind the American companies.
“There had been this speculation that the export controls would eventually bite and the gap would widen between American frontier models and their Chinese models, but GLM is pushing things in the other direction,” said Jeffrey Ding, an assistant professor at George Washington University who specialises in emerging technology and international relations.
And with Fable and Mythos sidelined, many businesses have realised the importance of having alternatives.
“There is a bit of apprehension at large organisations about loyalty,” said Justin Summerville, who runs data analytics at OpenRouter. “Who knows what the top model will be in three weeks?” NYTIMES
This article originally appeared in The New York Times.
