BEIJING — China is willing to do more to address White House concerns about illicit fentanyl trade, but it will be “a different thing” if ongoing debate over the drug facilitates more U.S. tariffs on the world’s second largest economy, an official from the Chinese Ministry of Foreign Affairs told reporters Wednesday.

Washington should have “said a big thank you” to China on what it has done to restrict fentanyl trade in the U.S., the official said via an official English translation, claiming the White House did not appreciate the effort and instead raised duties on Chinese goods twice this year over the drug.

Since taking office in January, U.S. President Donald Trump has increased tariffs on Chinese goods by 20% on the basis of the country’s alleged role in the U.S. fentanyl crisis. The addictive drug, precursors to which are mostly produced in China and Mexico, has led to tens of thousands of overdose deaths each year in the U.S.

The White House did not immediately respond to a CNBC request for comment.

Earlier this month, the Chinese government published a white paper to publicize its efforts to curtail the production and export of fentanyl precursors over the last few years. The official did not respond directly to a question on whether China would stop its recent efforts to restrict such trade.

Under the Biden administration, the U.S. and China had said fentanyl was one of the few areas in which the two countries could cooperate. Both sides held dedicated talks in Beijing last year on the topic.

Trump indicated earlier this year that he could also use tariffs as a way to pressure China into forcing Beijing-based ByteDance to sell TikTok, which is running against an early April deadline to remain available in the U.S.

Trump had emphasized tariffs as a way to reduce the U.S. trade deficit with China during his first presidency. Just before the onset of the Covid-19 pandemic, the two sides reached a “Phase One” trade agreement requiring Beijing to increase its purchases of U.S. goods. U.S. data shows that the trade deficit with China narrowed to $295.4 billion in 2024, from $346.83 billion in 2016, just ahead of Trump’s first mandate.

But differences on trade have continued since the January start of the White House leader’s second mandate. The average effective U.S. tariff rate on Chinese goods is now set to hit 33%, up from around 13% before Trump began his latest term, according to estimates from Nomura’s Chief China Economist Ting Lu.

Beijing has responded to the latest U.S. tariffs with targeted duties on energy and agriculture products, while tightening restrictions on exports of critical minerals that the U.S. needs. China’s Ministry of Commerce has also added several U.S. companies, mostly in aerospace or defense, to lists that limit their ability to do business with China.

The Ministry of Foreign Affairs official said Wednesday that China’s countermeasures were “legitimate actions” to protect its own interests.

Allianz estimates the additional 20% U.S. tariffs on Chinese goods would hit China’s GDP growth by 0.6 percentage points this year and next. But the firm still expects the Chinese economy to grow by 4.6% this year and 4.2% in 2026, based on the assumption that stimulus can mitigate the tariff impact.

“I would tend to say the retaliation is not so strong, maybe leaving room for negotiations,” Francoise Huang, senior economist for Asia-Pacific and global trade at Allianz Trade, said in a CNBC interview last week.

BEIJING — DeepSeek’s artificial intelligence breakthrough is stirring up China’s venture capital world after three straight years of decline.

As DeepSeek released its OpenAI rival in late January, AI drug discovery company Insilico Medicine was finalizing a $110 million series E financing round led by Hong Kong-based Value Partners, the startup’s CEO and founder Alex Zhavoronkov told CNBC in an exclusive interview. The deal closed last month.

But so many Chinese funds wanted to participate at the last minute — “like an avalanche” — that Insilico is planning a series “E2” raise, Zhavoronkov said. “We have never seen this level of interest before.”

Qiming Ventures-backed Insilico uses AI from DeepSeek and other companies to create models for developing drugs. Ten of the startup’s drugs have already received approval for clinical tests, according to Insilico, which lists research labs in China, the U.S. and the Middle East.

Zhavoronkov added that during his U.S. travels in the last few weeks, many U.S. and other global investors have asked him about ways to invest in Chinese AI companies.

“It looks like the DeepSeek moment, it created a lot of interest from global investors to invest in China,” he said Monday. “I think the funding is going to come back.”

Regulatory uncertainty in both China and the U.S., especially around IPOs, and slow economic growth have contributed to a sharp drop in Chinese venture capital activity in recent years. VC investment into China-based companies has fallen for the last three years, reaching just $48.86 billion in 2024, the lowest on record going back to at least 2016, according to Pitchbook data.

Now, as regulatory clarity emerges, sentiment is changing — and encouraging investors to take a different approach to the past, when internet-based startups such as Alibaba emerged.

“People are rushing just to find the next DeepSeek,” said Annabelle Yu Long, founding and managing partner of BAI Capital in Beijing. She also sits on the board of Coach parent Tapestry.

“Everybody is making investments, but I am asking my team to hold on new deals, because we see our core portfolio [of around 6 companies] are gaining very, very meaningful AI traction,” she said, noting that her firm is opting to increase its investments in existing holdings in coming months.

Part of her call stems from her view that Chinese funds have far less capital than U.S. ones to invest in AI, requiring a targeted approach. Instead of looking at new startups, Long said she expects entrepreneurs who are already using AI well to succeed in the near future.

For example, BAI Capital-backed Black Lake, which sells manufacturing management systems, has become profitable this quarter because AI has lowered service costs, Long said. Another of her investments, a healthcare company called Lejian, has become more profitable with the help of AI, and Goldman Sachs is preparing its IPO, she added.

Long said she plans to list nine portfolio companies this year, mostly in Hong Kong, and has received many calls from international investors about China’s economy and Chinese entrepreneurship beyond AI. “I definitely see a return of confidence.”

Other recent investment rounds also reflect how capital is piling into existing players. Insilico’s Zhavoronkov said some Chinese investors had previously lost nearly all their money on AI drug startups, and now recognize that only a few, likely more established, players will make it.

This month, AI model company Zhipu AI raised the equivalent of around $137.68 million from Alibaba Cloud and a Hangzhou city-backed fund, according to PitchBook’s records of 12 AI deals for the first 10 days of March. The data also showed robotics company LimX Dynamics raised an undisclosed amount from Alibaba Group and other investors.

China’s Lunar New Year in late January marked a turning point for AI investment. DeepSeek’s R1 model came out just before the holiday, while state media’s widely broadcast Spring Festival gala showcased dancing robots from Unitree.

“I think Unitree and DeepSeek encourage a lot of foreign investors to try to seek opportunities here,” said Hongye Wang, executive director at Shenzhen-based Forebright Capital, which has funds denominated in the U.S. dollar and Chinese yuan. He noted that some Middle East funds have recently been looking for opportunities in Chinese AI companies.

“I believe confidence [is] coming back,” he said of domestic VCs, noting many were traveling again for meetings.

Wang said his firm has invested in a company that makes cellphone chargers and AI glasses, and is looking for opportunities in humanoid robots, along with companies that provide solutions for computing reasoning. Forebright, which Wang says has several billion U.S. dollars in assets under management, plans to make at least five to six investments this year, he said.

“The fact that President Xi [Jinping in February] shook the hand of DeepSeek’s founder and pretty much gave the green light for generative AI to be used at scale, now you should expect a massive number of DeepSeek-like clones … that will be popping out and just disclosing what they have been doing over the past three years,” Zhavoronkov said.

Premier Li Qiang’s work report last week said China would work to “accelerate the development of venture capital investment and the growth of patient capital,” referring to long-term investment.

A day after Li presented that plan, Zheng Shanjie, head of the National Development and Reform Commission, told reporters the central government is planning a fund that’s expected to mobilize 1 trillion yuan ($137.7 billion) for tech investment. Central bank governor Pan Gongsheng announced at the same press conference that a loan program for tech innovation would nearly double to as much as 1 trillion yuan.

“From early stage investment to exit, policy is more complete and clearer,” Liu Rui, vice president of China Renaissance Capital, said in Mandarin, translated by CNBC.

He expects more resources to go toward AI applications this year, given the faster-than-expected decline in model operating costs and China’s large consumer base.

Tensions with the U.S. — ranging from tariffs to tech restrictions — remain a hurdle for international investors contemplating China AI opportunities, however.

Unlike U.S.-based companies that can access the global market, China-based ones will also likely find it harder to expand abroad given the sensitivities around AI and data, said Xuhui Shao, Palo Alto-based managing partner at Foothill Ventures. His firm focuses on the U.S. and doesn’t invest in China.

Even with the potential of China’s large market, foreign investors need to understand the risks of investing in China, such as restrictions on capital flow, Shao said. But he pointed out that “innovative breakthroughs” such as DeepSeek shouldn’t be a surprise given that China has many college-educated engineers and data scientists, who can represent half of the AI researchers at an industry conference.

“I think,” he said, “competition always pushes the whole sector [to move] forward and technology would not be contained by borders.”