DeepSeek and Xiaomi face US push onto Pentagon watchlist

This letter is another data point that cutting‑edge AI labs are now treated as national‑security assets, not just startups. DeepSeek has become China’s most prominent frontier‑model player, and being pushed onto the Pentagon’s 1260H list would effectively brand it, Xiaomi and others as military‑linked in the eyes of U.S. defense contractors and many global banks. While the list itself doesn’t impose sanctions, it can choke off partnerships, procurement and access to U.S.‑origin technology by raising compliance risk.

For the race to AGI, this hardens the fault line between U.S.‑aligned and China‑aligned AI ecosystems. If Washington continues to expand these watchlists around Chinese AI firms, it will accelerate Beijing’s push for indigenous chips, toolchains and cloud infrastructure while further limiting cross‑border collaboration. In the short term, DeepSeek may find it harder to access state‑of‑the‑art U.S. components or Western enterprise customers; in the long term, it could double down on a parallel stack that’s less exposed to U.S. policy shocks. Either way, the letter shows that model quality is no longer the only competitive variable—regulatory risk is now baked into any serious AI strategy.