The Bottom Line.
In this insight, Sandrine Zerbib writes about the development of artificial intelligence (AI) in China. From ambitions to actual impact, she comments on the role of tech giants and considers potential evolutions in a variety of fields and industries. Think media and leisure, for instance, or financial services and health. At the end of the day, she writes, the best way to participate in this tremendous growth of artificial intelligence is to learn from the Chinese and use their applications in China and outside China, especially in areas where Chinese companies are already highly successful …
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The development of artificial intelligence in China.
[By Sandrine Zerbib]
China wants to become the world leader in Artificial Intelligence. The statement is not groundbreaking, and we hear it pretty much everywhere these days. What is fascinating, however, is the existence of a boundary-pushing desire rooted so deep that it has led Beijing to build a national strategy of transformation built to develop and continuously nurture an innovative economy in which China is already and increasingly engaged.
China took advantage of many reform processes since 1978. With the introduction of the “open door policy” under Deng Xiaoping, its overwhelming demography has provided it with a surplus of low-cost labor and has eventually turned a developing country into the world’s second-largest economy. But the low-cost era will soon be over and, as its population ages, the country is now investing heavily into turning innovation (in general) and artificial intelligence into a key growth lever.
Technology and Artificial Intelligence ambitions.
China has a development plan centered on the creation of the next generation of artificial intelligence. The plan is not just theoretical, it has been formalized in July 2017 by the State Council into a three-step global vision for the AI sector:
- 2017-2020: maintain a pace of technological and application progress in line with other nations;
- 2020-2025: produce major breakthroughs in AI, enabling to reach the highest level in the world;
- 2025-2030: become the world’s leading innovation centre for AI, with innovations eventually turning China into the decision-making country on the matter.
In effect, the first implementation measures were taken six months after the presentation of the AI development plan and included in a detailed action plan published by the Ministry of Industry and Information Technology in December 2017.
In other words? China has the means to achieve its ambitions. China has a fully functioning public/private partnership system, immense financial resources, a large population of qualified researchers and, above all, inexhaustible reserves of data with algorithms that consume large amounts of data already available.
This creates tremendous capacity-building opportunities. In addition to Internet giants Baidu, Alibaba and Tencent, China is also home to a dynamic pool of startups. The Chinese government is also working closely with the big players in the sector. It has organized an AI “Yalta”, between Alibaba (smart city), Tencent (health), Baidu (autonomous vehicles), iFlytek (voice recognition) and JD (logistics and drones).
The results are already there. As of today, a third of the “unicorns”, these emerging companies valued at more than USD 1 billion, are Chinese.
>> Read also: Digital Transformation in China Insights.
Retail trade: a significant advance.
Artificial intelligence applications in the retail sector in China are numerous and probably more advanced than in any other country in the world. This is due to various factors which can be summarized as follows:
- the significant size and growth of the market permanently stimulate further innovation (with USD 4,900 billion, the retail market in China has exceeded the size of the American market since 2016);
- the Chinese appetite for Internet and digital solutions have turned China into the world’s largest online commerce market;
- China overall has a more flexible and innovation-fostering regulatory environment, particularly for data and UAV deliveries.
Again, the results are already there, and applications exist both in traditional retail (offline) and on the Internet (online). Applications range from personalized recommendation and prescriptive models to dynamic pricing, robotics at delivery points and facial and image recognition. A key performance tool in the sector, logistics also generates numerous artificial intelligence applications that reduce supply disruptions and delivery times, among other things.
>> Related reading: Ashley Dudarenok on Digital transformation in China.
At the same time, artificial intelligence allows Chinese Internet giants to develop “new retail” concepts through, for example, Hema stores (Alibaba), which offer a reinvented experience of the physical store and link offline and online, with few or no staff.
In this field, the recent alliances between Auchan and Alibaba on the one hand and Carrefour and Tencent, on the other hand, make China a laboratory of phy-gital transformation for major retail chains and everything suggests that successful experiences in China can be applied quickly to other markets.
The impact of Tech-Giants.
The development of Artificial Intelligence in China is also promoted by a pragmatic reality, i.e. that Chinese technology giants are extremely active in their foreign investments, with a focus on India and Southeast Asia. These include, among other developments, Alibaba’s and Tencent’s investments in Lazada and Shopee respectively to win the e-commerce battle against Amazon in this region and increase their data volume. But there is more to say.
>> Related reading: Tech in China: where do we stand?
The automobile sector: massive investments and definite progress.
In the automotive sector, artificial intelligence finds a particularly visible field of application in the field of autonomous and connected vehicles. This has led to a spectacular convergence of automotive manufacturers and technology giants around development platforms aimed at achieving Beijing’s very ambitious objectives in this sector. Chinese players are able to cover every link in the chain, and the software side is a segment in which the major players in Chinese technology – Baidu, Tencent and Alibaba – compete.
In reality, analyzing the main existing partnerships shows that their ambition extends far beyond this and that numerous developments are part of a strategy to build a real autonomous vehicle ecosystem whose matrix is their artificial intelligence platform.
Among them, Baidu is doing well and has demonstrated a particularly intense activity of technology acquisition and integration in its Apollo collaborative platform, created in 2017 and dedicated to autonomous vehicles. Apollo has about 100 partners worldwide, including Microsoft, Ford, Blackberry, and Intel.
Interestingly, the world of intelligent/autonomous vehicles therefore offers a particularly rich field of application for foreign (and particularly French) technological flagships capable of helping Chinese players to move up the range. Objectively, the ambitious objectives set by the government suggest that the best positioning on the market is that of a technological partnership on the elements of the value chain least controlled by the dominant local players (telematics, intelligent algorithms to ensure autonomous driving as secure as possible, etc.). And that creates room for cross-border partnerships.
Media and leisure: the new cultural frontier.
The electronic media sector is also of particular importance in China’s Artificial Intelligence landscape. In effect, China has become the world’s largest market for online film distribution and video games and giants like Tencent and Alibaba have long spotted a source of long-term growth through the use media to increase both traffic and the time spent on their e-commerce platforms.
As a result, the Chinese media and leisure sector has become a very fertile field of application for artificial intelligence. Some TV and film studios use intelligent applications to predict the performance of their content and accelerate their production. The video game industry offers new options to gamers through artificial intelligence, which also reduces certain costs. Some information sites have developed applications that can automatically generate articles, while others offer features that stimulate interaction with their users.
The giants Baidu, Alibaba, Tencent and iFlytek all have important activities in the field of media and entertainment. Among them, Baidu is considered as the pioneer in artificial intelligence whilst some “unicorns” such as Megvii, SenseTime and Mobvoi have already attracted a lot of attention. Others like Cambricon and DeepGlint are rising, already very competitive in their segment.
Artificial Intelligence and business planning.
The video game sector is attracting a lot of attention for a simple reason: with the help of machine learning, some companies can more accurately collect and analyze market and user data, enabling them to accelerate growth and increase margins.
Knowing more precisely the tastes of an audience helps to anticipate trends as well as the popularity of celebrities. Hence, AI-owners are better guided to choose themes, select celebrities and compose stories. By reliably expecting results, producers can better appreciate the consequences of their choices and make better decisions.
Beyond science fiction, technologies such as facial recognition also allow analysts to understand spectators’ reactions even before the spectators themselves have understood their own reactions. At the same time, artificial intelligence has also been used for several years by media actors, in collaboration with the government, to censor content in an intelligent and ultra-fast way.
Artificial Intelligence and life-changing innovations.
In video games, where Tencent and NetEase are the leaders, the most advanced application is speech recognition, which allows players to convert their voices into text or instructions, keeping their hands free to play.
The production of graphics will also be influenced, thus giving artists tenfold more power in their work and granting video game companies the opportunity to make significant savings and progress in visual quality. The use of visual recognition solutions also allows recreating virtual spaces with high fidelity, which is necessary for virtual reality (VR) games.
The major media and entertainment technology suppliers are still in the investment and experimentation phase, however, and it is likely that in the short term they will remain concentrated in their main market before expanding outside China.
In the video game sector, China has so far been able to protect its market from foreign players and facilitate the creation of an oligopoly made up of players such as Tencent, NetEase, and Changyou. These actors have two common characteristics.
One, they have been able to accumulate large reserves that enable them to make major investments abroad (Tencent, which bought out the Finnish Supercell in 2016 for nearly USD 10 billion).
Two, they originate from the first Internet portals and therefore have technological expertise in databases and AI. In retrospect, this combination of reserves + AI is unique in the world in the leisure and entertainment sector and gives them a major competitive advantage over their foreign competitors. The French company Ubisoft has much fewer cash and technology resources.
For the first time, a Chinese reality TV program has just been chosen for adaptation in the United States and Canada. “I am the actor” was a huge success (330m of viewers for the first two episodes); this show was designed in partnership with Tencent who used its technologies and AI to select participants based on their ability to appeal to the widest possible audience.
Finance and insurance: a promising and open sector.
With the increase in computing power and the accumulation of more reliable data, artificial intelligence is also creating many opportunities for innovation in the financial sector. Initiatives are multiplying both in research and applications to explore the new horizons offered by AI to the traditional professions of finance and insurance.
The enthusiasm of financial actors in artificial intelligence has its origin in:
- technology development: computing power, availability of algorithms due to data volume and reduction of technology access costs;
- the maturity of infrastructures and the availability of data in the financial field;
- increased profitability: potential cost reduction, revenue gain, and better risk management;
- fierce competition between financial players;
- the requirement of regulations: stricter prudential rules, data reporting, etc.
Practically speaking? The most commonly used technologies are recommendation engines, biometric recognition, and deep learning. They enable financial institutions to automate the process and/or increase efficiency by relying on “intelligent agents” in businesses such as trading, credit granting and risk management. Institutions can also rethink their relationships with their customers by setting up a 24-hour customer service department.
Health: an immense potential for development.
Health also represents a major potential for development, and artificial intelligence companies in the health sector can already be grouped into three categories, i.e. infrastructure, technology, and applications.
After focusing heavily on infrastructure, Chinese investments have been more focused on applications since 2016. In this category, medical imaging is the most developed type of application, followed by medical robots. With some hospitals already performing robot-assisted operations for several years, this market seems to be one of the few that has found profitability.
It should also be noted that ambitions in health also extend beyond borders, as shown by Tencent’s partnerships with Babylon Health and Medopad, two British health startups that use AI.
Analyzing the trend.
China has very clearly announced its ambition to become the leader and first innovation center for artificial intelligence in the world, but how it intends to do that remains the most interesting part of the discussion.
A detailed action plan has been produced, and it is based on a strong partnership between the public sector, cities, and large private companies, and combines a “Go In” strategy based on training and massive recruitment of talent in the field in China and abroad (data scientists for example), and a “Go Out” strategy based on supporting the financing of start-ups and mergers and acquisitions vis-à-vis artificial intelligence companies worldwide.
In effect, Beijing already exports part of its social surveillance model to countries such as Ethiopia, Iran, Russia, Zambia, and Zimbabwe.
The BATs have also all launched their AI research centers abroad: Alibaba with DAMO (United States, Russia, Israel, Singapore), Tencent with its AI research laboratory in Seattle. Crucially, the Chinese technology giants – led by Alibaba – do not hide their international ambitions, which are necessary growth drivers in the context of a relative slowdown in China. To the opposite, they have actively engaged in the acquisition of various AI companies and integrate them into their ecosystems. Overall, Tencent and Alibaba have already acquired stakes in more than a thousand non-Chinese companies and have invested in nearly half of all Asian unicorns.
Obstacles on the way?
Today, they are focusing on Asia, having curbed their Western and especially American investments since the beginning of the Sino-American trade war and new regulations aimed at limiting foreign companies’ investments.
Europe has also adopted regulations that will limit forthcoming developments, and in particular, the General Data Protection Regulations (GDPR) is establishing more rigorous procedures for approving Chinese companies wishing to invest in sensitive national technologies. But opportunities remain, as shown by Alibaba’s investments, particularly in collaboration with Vodafone in a data center in Frankfurt and with the Bolloré group in France.
At the end of the day, the best way to participate in this tremendous growth of artificial intelligence is, therefore, to learn from the Chinese and use their applications in China and outside China, especially in areas where Chinese companies are already highly successful: surveillance and security, e-tail, automotive. This can would enable foreign companies to increase the competitiveness of their product and service offering on the international scene or to reduce their production costs.
This insight was originally published in French in « La Lettre de la Chine Hors Les Murs » N°27, January 2019, by the French External Trade Advisors (Comite National des Conseillers du Commerce Exterieur).
Sandrine Zerbib | Founder at Full Jet.
Sandrine Zerbib founded and is currently running a Shanghai-based and China-focused brand management and digital agency specialized in digital brand strategy, e-commerce operations, and 360 marketing – from performance marketing to community management and event digitalization. Most Full Jet clients are international fashion, lifestyle and sports labels, such as G-Star, Dr. Martens, Wolford, Lacoste, TOMS, Brooks Running, Skechers, UGG and many others (www.fulljet.com.cn).
Disclaimer: The views expressed are those of their author(s) only and do not reflect those of The Asia-Pacific Circle or of its editors unless otherwise stated.
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