Why China is banking on AI

When it comes to the march of technology, the accepted narrative ranks Silicon Valley at the forefront of discovery and innovation, while relegating China to the subsidiary role of mass fulfilment. It’s a view that’s supported by the operational companies like Apple, whose Cupertino campus incorporates the R&D base that allows it to badge products with the ‘designed in California’ legend, while delegating the assembly of the majority of its iPhones to Foxconn’s vast Shenzhen manufacturing plant.

In many ways, artificial intelligence (AI) has followed the same trajectory, with the people at the cutting edge of research all operating from North America. But while the US is leading the field in AI advancement, China is way ahead in terms of its practical implementation – which plays to the country’s strengths in data gathering, as well as in the quality, speed and execution of manufacturing. Industry expert Kai-Fu Lee has recently written about this topic at length, somewhat controversially predicting that it will be the companies who are able to use AI’s deep learning and pattern recognition powers to make viable products that will triumph – not those who are driving the initial breakthroughs.

Bringing innovations swiftly to market

It’s easy to see why China has a lot of success in bringing tech to market with speed and efficiency. It has a huge domestic market and a business climate that encourages the kind of willing-to-fail behaviour that is essential for a healthy start-up culture. Kai-Fu uses ride-sharing as an example of China’s approach to market-making, outlining the rapid exploration of a number of ride-share concepts from bicycles to concrete mixers which quickly – and, some would argue, inevitably – led to the creation of companies including successful unicorn, Mobike.

The so-called ‘fail fast’ approach in which prototypes are developed and adapted to suit commercial ideas – all the while accepting that the price of success will necessarily be a bunch of failures along the way – makes it simply more likely that successful businesses will ultimately emerge. So, while a particular technology – face-recognition, for instance – might be flagged as the basis for hundreds of applications, it only needs to hit the mark with one to become a billion-dollar solution. And, rather than being a hindrance to progress, the fierce competition that is part and parcel of the Chinese business ethos fuels the speed of development even further.

Leveraging China’s vast consumer base

In China, the early adoption of new technologies isn’t confined to a small percentage of savvy users, in fact the swift and widespread acceptance of the latest developments means that tech companies usually find a willing market for their ideas. This approach is evidenced by the population’s widespread transition to mobile payments over the last few years which is rapidly replacing other payment forms to become the dominant tool. 

Naturally, the size and scale of China’s domestic market makes it more cost-effective for tech providers to address. But it also offers a rich source of data that allows AI engineers to inform and improve their solutions. Whereas the US may be squeamish about the privacy issues that go hand in hand with data mining, China has no such compunction. If the big shifts in the practical application of AI can be attributed to having access to massive amounts of data, China already has the advantage by dint of the fact that it is – according to The Economist– ‘the Saudi Arabia of data’.

Banking on government support

China’s AI developers also benefit from a deep well of government support. This isn’t simply about taking a protectionist approach that subsidises Chinese operations at the expense of foreign competitors. It’s also about creating an environment that provides a fertile growing medium for business – from the cities and roads that are primed for tech upgrades, to the low-regulation policies that enable new and unproven tech to enjoy a frictionless launch without getting bogged down in bureaucracy. The government has also invested heavily in research at China’s universities, increasing funding each year as it prioritises science and tech advancement. 

Beijing continues to launch wave after wave of AI initiatives in a bid to boost an industry that is estimated to be worth north of $150bn over the next decade or so. China has committed more than $2bn to build an AI technology park in West Beijing that will house more than 400 companies and provide a platform for research and development. 

Meanwhile, China’s tech giants – including Baidu and Tencent – are investing heavily in AI; Alibaba recently announced plans to earmark $15bn to build international labs focused on quantum computing and AI. Time was when China’s tech engineers would have headed for Silicon Valley to pursue their careers, whereas now there are increasing incentives for them to stay at home and transform China’s own AI industry. It’s an exciting time for China’s techpreneurs and for MBA students and executives looking to learn from practices at the cutting edge of the AI industry.


Shenzhen and the rise of CaliChina

Over the last few decades, Shenzhen has experienced an economic transformation that is nothing short of remarkable. In the 1980s, the area was largely agricultural, a landscape of rice paddies punctuated by rural villages. Today, around 12 million people reside here and it’s estimated that circa 90% of the world’s electronics are made here – Apple contractor Foxconn’s vast plant alone employs upwards of half-a-million people. No city, ever, has demonstrated such rapid expansion.

The rise of ‘CaliChina’
Shenzhen is home to tens of thousands of factories and has become the go-to source for the design and manufacture of all things electronic – as typified by the city’s vast Huaqiangbei market. Savvy commentators are dubbing it the ‘new Silicon Valley’, with influential Forbes contributor Salvatore Babones coining a new phrase – ‘CaliChina’ - to communicate the powerful synergy of this trans-Pacific makers’ hub. The ideas might still be generated in California but this is where they take physical form. The draw of Shenzhen’s electronics ecosystem has seen the city blossom into a natural destination for giant high-tech companies and hungry startups alike, all hoping to benefit from the proliferation of electronics expertise at every stage of the commercial process. Tech newbies like smartphone company Huawei have seen their businesses grow rapidly, while established organisations such as Airbus are diversifying their operations to take advantage of the opportunities for growth and innovation here. 

The Shanzai approach
In many ways, Shenzhen can align its rapid rise with the exponential growth of the mobile phone. Back in the early noughties, Nokia and Motorola were marketing phones that each retailed at hundreds of dollars. By contrast, Shenzhen’s manufacturers were able to produce similar models at vastly cheaper prices. Shenzhen now has a network of tens of thousands of factories – known as ‘shanzhai’ – that can mimic the design of popular electronics and manufacture them to a high standard. But business has moved on from simple copycat tech: eight of the top ten smartphone brands in the country — three out of the top six worldwide — are Chinese. Quality is high and because these businesses are agile, innovative and responsive they can quickly react to feedback or to market dynamics.

Incubating the perfect startup ecosystem
Shenzhen’s strong supplier base and manufacturing reputation aren’t the only attractions for tech startups, though. The government is providing infrastructure support and there’s also an established network of crowdfunding platforms that helps to keep startup funds flowing. The Shenzhen Stock Exchange has a NASDAQ-style tech exchange that is designed to provide a startup exit opportunity. China is constantly looking to attract fresh grassroots innovation by creating workshops, offering cheap loans and sponsoring tech fairs. Accelerators, like Hax and Shenzhen Open Innovation Lab support innovators from around the world to consider Shenzhen as the obvious choice for their design and manufacturing base. And why not, when you can access all the tech talent and fabrication know-how you need to take an idea from proof-of-concept to prototype in a few short days? It’s the perfect business model for Kickstarters everywhere.

Experience Shenzhen’s cultural – as well as commercial - heritage
As one of China’s wealthiest cities – and an easy trip from neighbouring Hong Kong - Shenzhen is a vibrant metropolis, attracting a wide mix of visitors. The city now boasts a ‘maker space’, a design district, and an extraordinary offshoot of London’s V&A museum that occupies part of the ground floor of the new £146-million Sea World Culture and Arts Center in the city’s Shekou district. There are theme parks and speciality markets, as well as lots of shopping experiences.
About an hour-and-a-half from Shenzhen is the Guanlan printmaking base. This 300-year-old village features quirky black-and-white houses that contain the workshops and galleries of printmaking artists from China and beyond. The Dapeng Fortress is a historic walled town to the east of Shenzhen that was prominent in the Opium Wars of the 19th century. Expect elegant mansions and ornate temples from the Ming and Qing dynasties.