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Preparing for China’s Next Export: AI

It’s 2 o’clock in the morning in Shenzhen. Sweaty workers push into the early hours, all for an afternoon dispatch that must be delivered to clients in Europe with a promise of zero defects.

Workers as young as 16 toil away on a packed shop floor while their smartly-dressed bosses stride up and down, occasionally circling back to the outposts and checking on the quality of the work.

The rest of the workers’ time is spent in a mix of talking and texting on their phones to friends, family, and clients alike. The smell of Cantonese takeaway food is everywhere, with tables covered in chopsticks. Aside from the occasional murmur, the only sounds are those of typing and whirling fans.

A new revolution

You might be tempted to think that the imagery depicted above was that of an infamous “sweatshop”, or factory of sorts. But this is not the case.

A new wave of economic activity is at the horizon, powered by a new generation of Chinese workers – a generation that seeks to knock the current global economy by bringing a revolutionary dimension to an already ground-breaking economy.

I speak, of course, of the revolutionary dimension of artificial intelligence.

China’s technological attitude

The story of Shenzhen is awe-inspiring. From its humble beginnings as a remote fishing village, Shenzhen first got a taste of industry from traders that used it as the gateway to bring beautiful clocks as gifts to Chinese royalty. These clocks inspired a maverick group of local manufacturers to reverse engineer and copy the clocks, who ultimately ended up competing with the best clockmakers in the world.

Fast forward to this day, and that maverick spirit has expanded across Chinese cities and flourished in the age of AI, with Chinese companies now rivaling those of Silicon Valley.

In 2018 alone, 37 Chinese companies gained the coveted status of Unicorns, each one racing to billion-dollar valuations with an aggregate value of over $84 billion in total between them. The majority of these companies specialize in cutting edge advancements in AI and Machine Learning, bringing innovation to fields like Facial Recognition, Ride Hailing, Language Processing, Big Data Solutions and many more.

If history has taught us anything, it’s that these Chinese behemoths won’t be satisfied with just being in second place. Though most of these companies are rarely heard of outside of their country, their aspirations are similar to their Western counterparts.

With one slight difference…

How Chinese companies expand: The Silkier Route

As the Chinese AI celebrity Kai-Fu-Lee documents in his book AI Superpowers, the Chinese tech companies that seek to expand globally do so without any objective to export their brand. Instead, they prefer to acquire, invest in, or jointly build up local startup competitors.

Silicon Valley “will build one global product and push it out on billions of different users around the globe… Chinese companies are instead steering clear of direct competition and investing in the scrappy local startups that Silicon Valley looks to wipe out.”

Chinese tech companies have adopted an almost stealth-like approach to market expansion, preferring to use low-key acquisitions to spread their technology rather than promote their in-built brand.

At the same time, they’re passing under the radar of bigger, more careful competitors. You can see this in examples like C-Trip’s acquisition of Skyscanner, Xiaomi’s investment in India’s chat app Sharechat, and Didi’s investments in ride-sharing companies all over South America.

This strategy of “Arming local insurgents” brings with it unforeseen benefits: When you’re free of the baggage of lugging legacy brands and having to market them around the globe, then you can focus your attention on entering a new market with the aim of customizing your technologies and building new brands.

Chinese tech companies have realized early on that what works in China may not necessarily be readily adoptable across the world. For instance, as Kai-Fu-Lee mentions in his book, “people in China are more accepting of having their faces, voices, and shopping choices captured and digitized.” 

The king of data

However, despite the lack of readiness of some economies for Chinese AI, it’s unlikely that Chinese exports will slow down anytime soon.

Indeed, Chinese companies’ biggest competitive advantage lies in Data Collection. Any AI Engineer would be able to tell you that an AI is only worth as much as the Data that’s used to train it. A mediocre algorithm would be far more precise than even the best algorithm produced if the former can count on extensive, good quality data.

China already boasts the largest population of Internet users in the world, with 800 million people on the web. The willingness of consumers to do everything online – from paying their bills to booking their vacations – allows for a clean and coherent data gathering ecosystem.

Startups have leveraged this pristine data environment to create stellar products. These products only get better with each iteration as consumer data is further collected with greater use of these products to train their AI further.   

What’s Next?

This petri-dish of rich data from hyper-connected consumers has in turn attracted the next big competitive advantage that is needed for any technology to scale up: Venture Capital. In 2017, 48% of the world’s funding in AI startups came from China, overtaking the USA for first place.

President Xi Jinping has added some fuel to that by launching a new Sci-Tech Innovation Board to “encourage small and medium-sized investors to participate in science and technology through public funds.” Thanks to this board, access to venture capital for Chinese AI startups has never been more institutionalized, transparent, nor abundant. This has led to even foreign venture capital firms like Sequoia Capital and Softbank to now put their money into Chinese startups.

Add to that a massive pool of tech-savvy talent and a history of being a country that promotes exports, then you can clearly see that China’s AI export wave is just taking off.

If managed correctly, it will reach the shores of all corners before we know it.