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.
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.”