By Weining Hu
On March 5, at the opening meeting of the National People’s Congress, China’s top legislature’s annual session, Premier Li Keqiang announced that China will accelerate research and development (R&D) in new and emerging industries, such as artificial intelligence (AI). It is the first time that China’s highest national meeting has included AI in the Government Work Report. The report’s singling out of AI indicates Beijing’s prioritization of the industry in its economic agenda, and therefore its determination to support its growth.
In recent years, China’s leadership has been increasingly thinking about how to ensure their competitive edge in the AI industry. The acceleration of China’s policy efforts to advance AI development began in 2014, when President Xi Jinping called for innovation and breakthroughs in science and technology, including AI, at the opening ceremony of the 17th Congress of the Chinese Academy of Sciences.
Following 2014, a series of national economic initiatives, including the 13th Five Year Plan (March 2015), Made in China 2025 (May 2016), Robotics Industry Development Plan (April 2016), and Three-year Guidance for Internet Plus Artificial Intelligence Plan (May 2016), all provided guidelines to boost AI R&D.
Just prior to the opening of the 2017 Two Sessions, China’s top economic planner, the National Development and Research Commission (NDRC), launched a national engineering laboratory for the research and application of ‘deep learning’, appointing China’s tech giant, Baidu, Inc., to lead the lab. The creation of a national AI laboratory is just one step taken by NDRC to boost R&D in AI. In 2016, the NDRC announced that it would create an AI market worth more than US$15.26 billion by 2018.
With strong incentives from the government, now may be the golden era for investing in China’s AI industry. Understanding why China’s AI market will be successful and what makes China’s AI industry a worthy investment prospect has therefore become paramount.
China’s data ecosystem
The essence of AI at today’s technology frontier is to have computer programs run massive amounts of data and perform pattern recognition and data analysis on that information. The more data there is to learn from, the more efficiently AI programs can perform. In other words, the scale of data fundamentally determines the output of AI programs.
According to the January 2017 China Internet Network Center report, as of December 2016, China had 731 million internet users, 95.1 percent of which are smartphone users. 496 million Internet users made digital payments with their smartphones, and 168 million users used smartphones to hail taxi services. The growth rate of both categories of internet users have exceeded 30 percent annually. The sheer volume of internet user data provides China’s tech companies with a massive amount of raw material to run their algorithms and refine their AI programs.
Additionally, existing internet users constitute a massive market for AI adoption in the future. Apps such as the Chinese search engine Baidu, the third-party payment app Alipay, the mobile messaging service WeChat, and the Chinese Pinyin input system Sougo Input have all nurtured their own custom clusters.
When AI applications are ready, these apps will be able to apply AI technologies through their services. For example, Alibaba has applied a face recognition tool in its Alipay app, and 150 million users have already started to use this function. Given that much of China’s internet sector is off-limits to foreign companies such as Google and Facebook, Chinese tech companies have exclusive access to Chinese internet users’ data, test out the algorithms, and consolidate its custom cluster without competition from outside competitors.
Research and development in China
China’s rapid progress in AI research has been remarkable. An October 2016 White House report indicated that in 2016, the number of academic research papers published in China in the field of deep learning exceeded the number published by U.S. researchers. Further, a recent Nikkei Asian Review study finds that Chinese patent applications in the segment of AI grew to 8,410 between 2010 and 2014, a 186 percent increase from the previous five-year period between 2005 and 2009.
More often than not, Chinese AI breakthroughs are not reported in Western mainstream media. The chief scientists at Baidu Research explained that, in some cases, AI inventions reported by the US were invented in China first and then later developed overseas. China is quickly catching up in the field of deep learning research. With increasing R&D investment from China’s tech giants, this growth rate is expected to continue in the future.
Strong growth projected
The Chinese market has witnessed exploding venture funding in AI startups in recent years. According to a research report co-authored by Netease, 202 Chinese AI startups raised a total of approximately US$1 billion in 2016. KPMG’s studies also show that venture capital has already shifted from big data towards AI in 2016, and the momentum of investment in the AI industry is projected to continue to grow in the coming years.
Although many Chinese tech companies have made technological breakthroughs within their fields of expertise, it will take years before the practical application of AI technology will be realized, and perhaps longer before it is mature enough for monetization. However, scientists often refer to AI as the core of the next wave of industrialization, and whoever leads the frontier in the AI industry will possess a strong hold of future growth. Therefore, investing in the AI industry is a strategic choice for those who are interested in long-term opportunities.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.
Dezan Shira & Associates Brochure
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia’s complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
An Introduction to Doing Business in China 2017
Doing Business in China 2017 is designed to introduce the fundamentals of investing in China. Compiled by the professionals at Dezan Shira & Associates in January 2017, this comprehensive guide is ideal not only for businesses looking to enter the Chinese market, but also for companies who already have a presence here and want to keep up-to-date with the most recent and relevant policy changes.
New Considerations when Establishing a China WFOE in 2017
In this edition of China Briefing, we guide readers through a range of topics, from the reasons behind foreign investors’ preference for the WFOE as an investment model, to managing China’s new regulations. We discuss how economic transformations have favored the WFOE, as well as the investment model’s utility, and detail key requirements that businesspeople need to examine before initiating the WFOE setup process. We then walk investors through the WFOE establishment process, and, finally, explain the new and idiosyncratic “Actual Controlling Person” regulation.