China will be the world’s dominant player in artificial intelligence by 2030. This isn’t a prediction by a researcher or academic, it’s government policy from Beijing.

A State Council document, issued in July last year, resolved to position China as the world’s pre-eminent practitioner of artificial intelligence (AI) in both research and application within the next 12 years. Governments across the world are rushing to support innovation in AI, but none has published as coherent a plan as China and – more importantly – has the ability to get things done: the Chinese government can implement policy in ways that are impossible in western democracies.

Intent, however, is one thing: to paraphrase the boxer Mike Tyson, everyone has a plan until they get punched in the mouth. The Chinese not only have a strategy, they have a track record of delivering on large-scale, ambitious projects. Its One Belt, One Road infrastructure project is reshaping large chunks of the world and its policy for ‘mass entrepreneurship and innovation’ has set aside $320 billion to support entrepreneurs in order to drive a structural shift from an industrial to service-based economy underpinned technology and innovation.

“The State Council paper laid out China’s desire to be a hub of AI innovation by 2030, and these papers have teeth in terms of very strong local execution,” says Kai-Fu Lee, a key figure in the Chinese technology industry. With a portfolio of 300 companies, Lee is among the leading investors in Chinese AI startups through his venture fund Sinovation Ventures, a $1.8bn dual currency fund, which also invests in the US.

“All the ministries are thinking about it – from the ministry of science and technology to the ministry of education,” Lee says, detailing an array of subsidies, tax rebates, guiding funds and incentives offered by local governments which, in China, typically have a significant role in investment alongside private investors. “State Council papers have the tradition of rapidly mobilising the whole country as a call to action and we’ve seen that in the speed in which China has built its high-speed rail, and when its mass entrepreneurship and innovation campaign [launched in 2014] caused 66,000 incubators to be built over two years.”

Lee, 56, is ideally placed to offer a perspective on the Chinese technology sector, as he occupies the unusual position of being both an outsider yet is, demonstrably, also an insider. Born in Taiwan to Chinese parents who emigrated to the US, he attended high school before completing a PhD in computer science at Carnegie Mellon. In 1990, he was appointed chief research scientist at Apple, where he worked in both product and management, before moving to Microsoft in 1998, where he served in a number of senior roles, including instituting Microsoft Research in Beijing. In 2005, he was appointed president of Google China. After four years at the search giant he announced he was leaving to run, Sinovation Ventures, which specialises in early stage and seed funding. Today, with investments in verticals from retail to transportation, fintech to robotics, he’s something of a rock star in the Chinese tech scene, with more than 50 million followers on social networks within the country.

With entrepreneurial culture having developed at breakneck pace in China over the past decade – today, the value of some Chinese technology companies like Alibaba and Tencent surpasses that of their American counterparts – Lee’s belief is that China enjoys significant structural advantages, primarily that of scale.

“AI is run on data as fuel and China has so much more data than any other country,” Lee says. “While the mobile user numbers are maybe three X difference, the mobile payment numbers are more like 50 times more than the US. This huge amount of data can be cranked through the AI engine for better predictions, better efficiency, higher profits, less labour, less cost and so on. The data advantage is a huge one.”

As debate continues in western democracies about the power and influence of technology companies and the way they share and use consumer data, there are few such qualms among Chinese consumers – and certainly none among technology companies, all of which operate with the implicit approval of the government. Earlier this month, Beijing startup SenseTime, which makes surveillance technology, received $600m in funding, giving it a valuation of $4.5bn.

 

“Chinese users are willing to trade their personal privacy data for convenience or safety,” Lee says. “It’s not an explicit process, but it’s a cultural element.”

But, state policy and a vast marketplace will only take innovation so far. In order for machine learning and other forms of computer science to provide the tools needed for the dominant startups of the future, there is a need for talent in what has become a global marketplace.

 

“There are a huge number of engineering students who are ready to go into AI,” Lee says. “A lot of people misunderstand AI as a brilliant scientist invents another AI algorithm for medicine, finance, loans, banking, autonomous vehicle, face recognition… But that is just not the way AI business is run. There is really one fundamental AI innovation – deep learning – and everybody else is tweaking it for the domains.

“So, we’re not in the age of discovery; we’re in the age of implementation, we’re in the age of data, and China has a better set, a larger set of implementers or good AI engineers who get the work done, who make the algorithms run fast, connect to business logic.”

Lee argues that this dominance means that – for its own good – the west needs revise its view of Chinese technology companies being copycats of western products, and acknowledge that, in fact, some categories of Chinese technology are best-in-class. The biggest danger for Silicon Valley, according to Lee, lies in solipsism and complacency in its own supremacy.

“I think from a logical standpoint the time has come to copy from China,” Lee says. “But from a reality standpoint, I think first the West has to know that China is now ahead in many technologies and actually many business models, products and features. For example, if you compare WeChat with Facebook Messenger or WhatsApp, if you compare Weibo with Twitter, if you compare Alipay with Apple Pay, China is leaps and bounds ahead of the US. On a logical level, it’s time to copy, but in practice, it’s not. Chinese entrepreneurs know everything about what’s happening in Silicon Valley. Silicon Valley people, a few of them know a lot about China; some of them know a little bit about China; most of them know nothing about China.”

Lee believes the area in which China excels is the merging of the online and offline worlds via the development of complex sensor networks that are being deployed to blend the digital and physical in, for instance, retail environments.

“Alibaba and Tencent have both developed either their own or invested in shops that are moving rapidly into stores that are smart, AI enabled, with an AI enabled supply chain, inventory management and also deploy cameras and other devices for understanding customers, integrating online-offline customer profiles and even going as far as autonomous stores,” Lee says.

In June 2017, Sinovation Ventures, put $4.4 million into Guangzhou-based F5 Future Stores, an automated retail and food retail startup. As there are no sales staff, customers order via smart phones or interact with in-store screens to place orders. In a country that is mobile first – 90 per cent of internet activity in China is via mobile devices – the proposition is founded on the bedrock of so much innovation in China, namely the most sophisticated, frictionless mobile payments ecosystem in the world, which is used by 700 million people whose online profile is linked to their Alibaba or Tencent payment accounts.

“The US used to lead the world in the best real estate layout of shopping centres,” Lee says. “The future shopping centres will probably be invented by the Chinese and will have full integration of online-offline, personalisation of each shopper and a highly effective combination of things that are service-intensive – such as children’s play areas and entertainment – as well as autonomous services such as fast food and convenience stores. Much smaller, much higher efficiency shopping will redefine the future shopping experience, which is a large part of the online-offline combination that is happening.”

Lee characterises the State Council as ‘techno utilitarian’, which he says offers entrepreneurs a significant advantage. One parallel is the way that Silicon Valley orthodoxy encourages startups to launch imperfect products onto the marketplace to see what works and then iterating. “Instead of debating an issue to a perfect conclusion and then implementing as law – as sometimes Western countries do – it will tend to launch things and see if it works. If it does, great, make it bigger; if there are issues, course correct.”

This, of course, could have significant economic impact: the lobbying by the truck drivers’ union in the US to protect its members from the threat of autonomous vehicles – a move that would have little impact were it to happen in China – demonstrates significant cultural differences in how lawmakers approach the structural implications of the effect technology will have on large swathes of the workforce. And, as the US and China consolidate the influence they have over the deployment of AI, this will have a disproportionate impact on smaller countries, which rely on largely unskilled workforces for economic growth.

“Increasingly AI companies and tech companies will have a disproportionate share of the value creation and many jobs are going to be replaced by AI,” Lee says. “The China dream – the idea that a poorer country can, through lower labour costs, climb up the ladder by manufacturing more cheaply and exporting – is over. I think that spells a lot of challenges for many of the smaller countries, especially those that are not technology rich and have large labour forces that might be replaced by AI.”

This geopolitical impact will largely be compounded by what has effectively become a duopoly between the US and China, in which two distinct spheres of influence are being established. One scenario is that US technology companies will dominate the west and perhaps Japan, while Chinese startups – which more commonly attempt to partner with local players by supplying technology and capital – will establish themselves in the developing world.

“Whether China penetrates into south-east Asia, India, the Middle East, maybe South America, is anywhere between possible and likely and a big plus for China, but even without that China is very strong,” Lee says. “A lot of people outside China question, ‘Oh you have to go outside China in order to be a big global player.’ While I think going global is a great thing and China will make strides, I don’t think it’s as important as people make out because China is already by far, the largest homogenous market in the world, it’s unified in language, culture, and government and it’s also fully connected with mobile payments. That’s probably about as important as the Western world combined.”

And while the US still has the upper hand, Lee sees the balance of power shifting. “China clearly has a data advantage,” Lee says. “Its engineering is as good as elsewhere, maybe almost as good as elsewhere. Its entrepreneurs are probably stronger than any other country. The amount of capital is comparable with the US and the market is bigger. The duopoly is already a reality, except that you might say US has an upper hand today. But I think that ratio will inevitably change.”

 

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