Trade war or not, from AI to blockchain and new energy vehicles, China is on the front row for the Fourth Industrial Revolution

Edward Tse says China is rapidly turning a corner towards becoming an innovation hub in advanced technologies, and the trade war with the US will ultimately not prevent this

PUBLISHED : Monday, 08 October, 2018, 2:03am
UPDATED : Monday, 08 October, 2018, 3:18pm

The topic of the Fourth Industrial Revolution topped the agenda last month at the World Economic Forum “Summer Davos”, where over 2,000 top-level representatives from politics, business, social sectors and the arts gathered in the Chinese municipality of Tianjin.

China has been one of the leading countries in this imminent revolution, characterised by cutting-edge new technologies that are “blurring the queues between the physical, digital and biological spheres”, according to forum chairman Klaus Schwab. The Made in China 2025 initiative, for example, has set China’s vision to take on global leadership in advanced manufacturing and hi-tech industries.

China has rid itself of its “copycat” stigma and has emerged as a global innovation hub in business. In 2017, the internet and technology sector – ranging from ride-hailing to e-commerce, robotics and artificial intelligence – grew at 18 per cent, substantially outpacing the overall economy, which grew 6.9 per cent, according to Xinhua.

In a recent op-ed in The New York Times, journalist Thomas Friedman quoted internet and technology analyst Mary Seeker as saying, “Five years ago, China had only two of the world’s largest publicly traded tech companies, while the US had none. Today, China has nine of the top 20 and the US has 11. Twenty years ago, China had none.”

In a recent Forbes op-ed, financial writer John Mauldin pointed out that China is building the world’s largest innovation economy and that its Greater Bay Area, which comprises Hong Kong, Macau and nine cities in Guangdong, is like “Silicon Valley on steroids” due to its size, policy support and innovation competitiveness.

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The Chinese are fully embracing new and emerging technologies like artificial intelligence, the internet of things and blockchain, as well as 5G, to further enable innovations. Governments at both central and local levels, as well as the private sector, are investing significantly in revolutionary fields. These technology breakthroughs will enable a higher level of automation, connectivity and intelligence, as well as more game-changing business models.

For example, in a drive for automated manufacturing, in 2016, China added a total of 87,000 industrial robots, just slightly shy of Europe and the United States combined, according to the International Federation of Robotics. Schwab characterises China’s initiative in advanced manufacturing as “a supply-side miracle, with long-term gains in efficiency and productivity”.

Two-thirds of the world’s investments in AI have been going into China and have enabled a 67 per cent growth in the industry just in the past year, according to recent research from Tsinghua University.

A report by ABI Research says that Chinese AI start-ups overtook their US counterparts by raising nearly US$5 billion in venture capital funding in 2017. The Chinese companies also filed the largest number of domestic AI-related patents, trumping Silicon Valley by as much as seven times, according to data from CB Insights. Last November, Shanghai Municipality announced a new plan outlining a road map towards becoming a major, national AI hub.

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In China, new value chains for the use of blockchain in different industry sectors have emerged. Around 450 blockchain technology companies have been registered in China, according to the Ministry of Industry and Information Technology. The regulatory attitude has turned from scepticism to acceptance and now encouragement.

This year, the Chinese government has funded multibillion-dollar initiatives to develop blockchain-based networks, with Hangzhou city government investing a total of US$1.6 billion in the Global Blockchain Innovation Fund this April.

In the automotive sector, innovations in new energy vehicles are gaining speed, in addition to autonomous driving and “mobility as a service”, which aims to reshape how city-dwellers get around. Traditional carmakers, both foreign and local, are trying to reposition themselves as future new-energy vehicle makers, while competing or collaborating with dozens of new, non-state-owned players, such as Nio, which was recently listed on the New York Stock Exchange.

We must prepare for the AI revolution

China will be in the front seat, witnessing the turning point into the Fourth Industrial Revolution, perhaps ahead of most, but not all, other countries. Innovation has become and will continue to be a global, prevailing theme, and a country’s future well-being hinges on its willingness and ability to embrace this trend.

Many foreign companies and their lobbyists have complained for a long time about the lack of market access in China and have demanded “reciprocity”. While they remain fixated on such issues, they have largely ignored the major shift in China’s innovations in the meantime, and have become bystanders.

The US-China trade war notwithstanding, China will emerge as a larger and more capable innovative economy. China’s pathways will inevitably involve many ups and downs, some experiments may not work out as planned and some resources will be wasted.

The lack of core technologies such as cutting-edge microchips have exposed China’s weakness but this has also given the Chinese the impetus to catch up. Many start-ups will fail, but a small percentage will make it. It would be foolhardily for anyone to discount China’s will and ability to achieve its goals.

China is replacing the US in global order whether world likes it or not

Innovations will certainly create social challenges such as job dislocations, education re-configurations and increased wealth disparity but they will also bring about advances to humanity and create major opportunities for companies and individuals who can anticipate the opportunities and figure out ways to capture them. Those who can’t, or won’t, run the risk of being marginalised or worse. It’s time to ask yourself: which side of history would you rather be on?

Edward Tse is founder and CEO of Gao Feng Advisory Company, a global strategy and management consulting firm with roots in Greater China. He is also author of China’s Disrupters