Across The Border

China’s AI industry has this one huge advantage over the US

PUBLISHED : Sunday, 23 July, 2017, 8:38pm
UPDATED : Sunday, 23 July, 2017, 10:50pm

China’s 1.4 billion population has laid an enviable foundation for the artificial intelligence (AI) industry, thanks to the tremendous volume of data produced daily.

In particular, the nation’s 730 million internet users, including the world’s largest market of smartphone users, contribute to the vast data gold mine.

Tencent’s WeChat has almost 940 million users worldwide and Alibaba Group has more than 420 million active buyers on Taobao, while Baidu has the country’s leading search engine. The tech trinity is leading many other companies to buildup their databanks. With technology giants collecting vast user data through their proprietary platforms, service users have not only constituted a massive potential market for AI adoption in the future, but it has also become a priceless database for companies to improve their technologies.

“It’s not only the quantity, the quality of data in China has also surpassed its rivals,” said Zhijin Xia, partner at Vertex, a venture capital firm under Temasek Holdings. “Chinese heavily rely on their mobile phones, which generates valuable data about the users.”

For example, China’s popular bike-sharing services provide cheap transportation options. But when riders rent a bicycle, firms will keep track of users’ movements using GPS devices in the bike. Its various data tracking measures can provide insightful data like commuting habits, rental history and even credit reports of the user.

The growing importance of data has not gone unnoticed in Beijing. Last week the government unveiled a development plan to become the world leader in artificial intelligence (AI) by 2030 and create a domestic AI industry worth more than 10 trillion yuan.

The world’s second-largest economy has been investing heavily in artificial intelligence, and now even surpasses the US by some measures. For instance, the number of AI-related patent submissions by Chinese researchers has increased by nearly 200 per cent in recent years, while China has overtaken the US in the number of published journal articles on deep learning.

The rapidly growing industry owes something to the huge growth of data available in China. AI-powered technology must be fed huge quantities of data. The more data are available, the more algorithms can learn.

Meanwhile, China is fully aware of the value of its massive data mine and has tried hard to protect it.

The latest cybersecurity law which took effect in June requires firms to store user data on servers inside China. International business groups tried to appeal the law, but appear to have yielded. Apple has announced they will build a local data centre in China.

“Limitations on cross-border data flows is a disadvantage for global collaboration,” according to a report by McKinsey Global entitled “Artificial Intelligence Implications for China”.

But how valuable is the data is for businesses outside Greater China Area? The answer might be less than one might expect.

“Most data [collected in China] will be of no use once outside China,” said Professor Qiang Yang, head of the Department of Computer Science and Engineering at Hong Kong University of Science and Technology.

Regulations on cybersecurity have proved a boon to Chinese tech companies, while foreign players like Google have retreated from China due to data security concerns.

The barriers to entering the world’s second largest economy has created unique advantages for domestic artificial intelligence firms.

However, China’s tech companies are focusing their artificial intelligence business inside China in an effort to leverage their “China databank”, said Yang.

Meanwhile, the US has bolstered its scrutiny over investments in artificial intelligence, amid fears that it would allow countries like China to access sensitive data and technology.

But China appears to have taken a more sanguine approach. For example, Vertex Capital, which counts Singapore’s Temasek among shareholders, has invested in several AI-related startups, including some in public transportation and personal finance that will deal with sensitive data. According to Xia, there has been little government restriction on foreign investment in such companies. “ I don’t think there is much policy risk over data protection in the foreseeable future,” Xia said.

Another explanation is that there hasn’t been much international capital invested in the sector so far. From 2012 to 2016, Chinese AI-related companies received US$2.6 billion in funding, most of which has come from domestic sources. In contrast, US$17.9 billion has been invested in US companies linked to the AI sector.

To achieve its goal of creating a world-leading AI industry, the Chinese government needs to embrace an open approach to research, technology, and talent from around the world.

“Artificial intelligence is a cause benefiting all mankind and requires global collaboration,” said Yang. “But there’s nothing wrong with data being collected and used locally.That’s how it should be.”

Alibaba Group is the owner of the South China Morning Post.