Why China Produces More Entrepreneurs than India

Nov 27th 2017 | The Economic Times

Despite China’s economy being far superior to India’s, its neighbour has a clear edge: a thriving democracy and an open economy. Yet, China is producing more and bigger entrepreneurs than India. The rise of Tencent, Alibaba, Baidu and Xiaomi from zero to billions of revenue in just a few years has no parallel in India. How could an authoritarian state have bigger private enterprise than a democracy?

Low wages, subsidies, institutional reforms, foreign investment and a favourable demographic have no doubt fuelled the Chinese growth in the past decade, but the recent explosion of private enterprise can be best explained by its crazy internet boom that has pulled a big majority of its people into formal economy.

In his 2015 book ‘China’s Disruptors’ Edward Tse coined an acronym to identify factors that triggered the entrepreneurial explosion— SOOT, which stands for scale, openness, official support and technology. These factors can be best seen operating together in China’s growing digital economy marked by huge people participation, transparency, supportive government policies and, well, technology.

A study by Pew Research Centre that tracked internet use in the two countries from 2013 to 2016 found China had 71% internet users while India had only 21%. It defined an internet user as the one who used the internet at least occasionally or owned a smartphone.

Recently, India’s minister for information technology Ravi Shankar Prasad said the government was trying to push Indian digital economy to $1 trillion in the next five to seven years. China’s digital economy was $3.35 trillion in 2016, according to government data. It grew 18.9 per cent, much faster than China’s overall economic growth at 6.7 per cent. Digital economy accounted for 30.3 per cent of China’s total GDP. It contributed 69.9 per cent to the GDP. So many people formally involved in the the economy means its easier for Chinese companies to achieve scale and critical mass.

China’s digital economy grows not just due to consumers and investors. The government too supports it. Chinese Premier Li Keqiang started an ‘Internet Plus’ policy to promote integration of digital technologies into various economic sectors.

According to Dominic Barton, managing director of McKinsey & Co, the reason why China produces more entrepreneurs is the large economic base. More people in China participate formally in the economy than in India. “Companies such as Tencent came out of nowhere. What they’ve done using data analytics is that they are serving 300 million people, so participation rate of Chinese in their economy is higher,” he said in a recent interview.

“We’re just at an earlier stage. China has poor regions but not as black and white as India. But as more and more Indians get connected, get inducted formally into the system, it will happen,” Barton said.

India’s digital push, started with the government’s hugely disruptive decision to ban high-currency notes last year, may not have helped the government much in fighting the black economy as it had hoped to. But it can surely lead to more formalisation of the economy, pulling a large number of people into the economic mainstream. A bigger consumer base will not only make it easier for Indian entrepreneurs to scale up fast, but it will also attract new entrepreneurs to try out disruptive ideas.

 

新浪财经 | 谢祖墀:中国是否会成为全球人工智能的领导者?

文 | 谢祖墀

最近,美国《华盛顿邮报》邀请我写一篇有关中国人工智能发展的文章。这篇文章刊登后受到了国际上不少观察者的关注。我把此文翻译成中文,在此与各位读者分享。

中国国务院在七月份印发了《新一代人工智能发展规划》,为中国的人工智能产业定下两大目标:一、2020 年,中国人工智能总体技术和应用与世界先进水平同步,人工智能核心产业规模超过1500亿元,带动相关产业规模超过1万亿元;二、2030年,中国人工智能理论、技术与应用总体达到世界领先水平。如果一切按照政府计划进行,中国有望在2030年之前成为全球人工智能的领导者。这不仅会影响中国经济和社会发展,更会改变全球政治格局。

创新土壤

我认为中国将会在未来10年成功实现这个目标,而绝大部分原因是基于中国目前在人工智能领域的基础及发展。纵观世界上大部分国家,都没有就人工智能形成一个清晰的发展思路。而中国却能有效地将自上而下的政府领导力和自下而上的自主大众创新紧密结合,形成一个极具竞争力的人工智能创新生态系统。

再者,中国坐拥7亿多互联网用户,源源不绝的大数据能为人工智能算法提供极具价值的训练。中国繁荣的互联网生态也为人工智能的研究者提供一个很好的平台,方便他们收集和分析大量多维度的人口、交易和行为大数据,有利于他们开展超国外同行规模的大型数据实验。

是这种创新的土壤使得中国有望在未来十几年内成为人工智能的世界领导者。这并不是轻率的结论。为了洞察其中的原因,我们需要进一步了解中国当前的技术进展。

中国对人工智能的投资

如今,中国许多地方政府正提供财政支持来鼓励人工智能相关的创新。在政府的扶助下,中国最贫穷的省份之一贵州,已经成为中国的“大数据产业基地”。由于政府这一高瞻远瞩的举措,苹果、阿里巴巴、腾讯、高通等互联网巨头都在该省成立了新的大数据中心。 政府数据显示,2016 年贵州省国内生产总值(GDP)增长了10.5%,是中国GDP增长最快的省市之一。

另一个例子是重庆市。它成立了国内首个人工智能办事处来推动本地的人工智能发展。重庆在5月份更与百度开展合作,以求进一步发展人工智能和大数据产业。中国的其他地方,如雄安新区及粤港澳大湾区,也纷纷将人工智能定位为其未来发展的核心增长引擎。

鼓励企业优先发展人工智能

中国政府的利好政策激发了众多本土科技公司的创新热情。百度、阿里巴巴和腾讯等领先的互联网巨头,碳云智能和商汤科技等迅速发展的创业公司,以及滴滴出行和小米等估值达10亿美元“独角兽”公司 ,都正在积极采用或是投资人工智能技术。

例如,百度将公司战略从过去的“移动互联网先行”升级为“人工智能先行”。其中一些项目成果包括:DuerOS——连接智能设备(如扬声器、电视机和冰箱)的对话式人工智能操作系统; 阿波罗计划——自动驾驶车辆的研究和开发平台; 百度大脑——拥有60 种不同人工智能服务的平台。百度的竞争对手腾讯也成立了自己的人工智能实验室,其开发的软件在今年早些时候更打败了日本围棋高手一力辽(Ryo Ichiriki)。

此外,医疗保健初创公司碳云智能正使用人工智能技术构建数字化的“生态系统”,以此收集用户的生理和心理数据,进而提供个性化的健康分析并预测健康状况。商汤科技,一家成立于2014年的初创公司,专注于计算机视觉的创新和深度学习技术。 今年7月份,商汤科技宣布融资4.1 亿美元,是为全球最高的单笔人工智能投资。

面临挑战

然而,中国如欲成为全球人工智能领导者,还需要弥补几项重大差距。根据腾讯研究院最新的人工智能报告显示,中国的人工智能公司在数量上落后于美国,尤其是在核心部件和技术流程方面。虽然中国在人工智能的应用和商业化方面占据上风,但在人工智能的创意和底层研究方面不及美国。

另一个潜在的挑战是地缘政治。 据路透社引用的五角大楼白皮书称,美国政府注意到中国公司正增加投资在人工智能和机器人等关键技术领域的美国初创企业,认为中国以此推动中国经济发展和军事能力,对国家安全存在潜在威胁。因此,针对敏感度高的前沿人工智能技术,美国想要严格审查有关跨境投资。然而,特朗普行政部门今年五月曾提议将国家科学基金会在“智能系统”上的拨款削减百分之十。这对中国来说将是潜在机会。中国可以凭借其强大的政府支持和财政奖励,吸引美国优秀的人工智能人才在中国建立人工智能实验室。

中国若要成为人工智能的全球领导者,仍需不断努力和创新。中国具有实现该目标的资源和人才,再加上有国家战略和相关政策点发展人工智能产业,中国对于全球人工智能领导者的地位似乎志在必得。
原文发表于《亚布力观点》(2017年11月刊)并保留所有权利

(注:本文图片均来自网络)

关于作者:
谢祖墀博士(Dr. Edward Tse)是高风管理咨询公司(Gao Feng Advisory Company)的创始人兼首席执行官。中国管理咨询业的先行者。过去的20年里,他创立并领导了两大国际管理咨询公司在大中华区的业务。外界评价他为“中国的全球领先商业战略家”和 “谢博士之于中国企业界就如大前研一之于日本企业界”。他曾为数以百计的公司(总部设在中国及其它地区)咨询过所有关键战略和管理方面的业务,涉及中国的各个方面和中国在全球的地位。他还为中国政府在战略、国有企业改革和中国企业走出国门等方面做过咨询。他已发表200多篇文章并出版了4本书,其中包括于国际获奖的《中国战略》和《创业家精神》。谢博士获得了加州大学伯克利分校工程学博士、MBA以及麻省理工学院的工程学学士、硕士。

Whoever Dominates AI will Put Their Stamp on the Social Order

By Nathan Gardels
October 20, 2017 at 3:22 PM

The much-anticipated — and often feared — march of the robots into all aspects of society is underway. Hollywood images aside, robots are in reality nondescript, intelligent machines programmed to mimic, and even surpass, the human capacity to recognize patterns and perform tasks. They do so by rapidly processing massive amounts of data as well as reading instant feedback from sensors, such as those that guide self-driving cars. Their impact is already being felt in nearly every realm, from how we manufacture things and make a living, to the quality of our lives as we age. Advances in artificial intelligence are redefining warfare and reconfiguring the geopolitical balance.

The challenge is making smart policy choices that realize the promises of AI while containing the perils. Eliminating the drudgery of routine labor and enhancing energy efficiency in a warming climate are surely triumphs for humankind. The dissolution of privacy as individuals lose control over their personal information — not so much. This week, The WorldPost examines the impact of intelligent machines and considers who will win the race to dominate these new technologies.

Founding president of Google China Kai-Fu Lee dispels the rosy Silicon Valley notion that universal basic income, or UBI, is an optimal solution to the massive job displacement that the coming AI and robot revolution is expected to unleash.

According to Lee, who heads the AI institute at the venture capital firm Sinovation Ventures, “Roughly half of all jobs will disappear in the next decade.” When robots and AI inevitably take over, he argues, we cannot naively assume a government stipend alone “will be a catalyst for people to reinvent themselves professionally.” In order to truly turn this technological revolution into “a creative renaissance,” he writes from Beijing, we will instead need to capitalize on the human touch and focus on people-to-people interaction, because ultimately “only humans can create and come up with new innovations. AI … cannot think outside the box, and it can only optimize problems defined by humans.” Societies will have to bend to the new realities not only with a basic guarantee of subsistence, he argues, but also with a new definition of the work ethic and a new valuation of social labor, such as elder care.

John Markoff actually worries that there won’t be enough humans to conduct elder care and thus sees the elderly as the next frontier for AI. “Globally, the number of people over 80 will double by the middle of the century — almost half a billion people will fall into the neediest care category — and that percentage will increase by sevenfold by the end of this century,” he writes. “The dependency ratio — that proportion of humans who require care compared to those who can give care — is also increasing inexorably.”

While Japan is leading the way in robots for elder care, Markoff notes, other aging nations, including China — a byproduct of decades of a now-abandoned one-child policy — as well as Europe and the U.S., lag behind and will inevitably have to follow suit. For now, he says, as roboticist Rodney Brooks has suggested, “self-driving cars will be the first elder-care robots,” enabling old people to maintain their mobility when acute awareness of their surroundings and reaction time diminishes. Sensors that can track when an elderly person needs medical assistance are not far behind, followed by what Markoff calls “machines of loving grace” that will offer companionship for the old and isolated.

As with all great transformations, there is a geopolitical dimension as well. Whoever dominates AI, especially its military and security applications, will put their stamp on the world order. America has long taken comfort in the delusion that it has a permanent advantage in leading technological innovation. But as Eric Schmidt, chairman of Google’s parent company, Alphabet, told me in a recent conversation, he expects China will surpass Silicon Valley in artificial intelligence advances in about a year. Edward Tse explains why.

“While so much of the world today lacks clear direction,” Tse writes from Shanghai, “China has an edge in its ability to combine strong, top-down government directive with vibrant grass-roots-level innovation. Beyond this, China has an abundance of data to train AI-learning algorithms because of its huge population of Internet users — more than 700 million. China’s thriving mobile Internet ecosystem also provides a test bed for AI researchers to collect and analyze valuable demographics and transactional and behavioral big data and to conduct large-scale experiments at a much higher level than foreign counterparts.”

Beware to the winner of the contest, however. Big data analysis through the prowess of intelligent machines introduces a host of threats — not least of which is the unsettling reality that where there is connectivity, there is also surveillance. The more we know or learn through connected networks, the more that is known and learned about us. The communication technologies we use today are invasive by design, collecting our photos, comments and friends in giant searchable databases. In the West, private companies intrude on privacy to monetize personal data. In China, the security state is well on its way to becoming an all-seeing Big Brother.

Technological change would not gain momentum if it was not in some way responsive to the demands of society. In the end, who defines those needs and desires will determine whether fulfilling them is good or bad for society as a whole. For now — unless or until they acquire “general intelligence” — robots and AI remain bound to the humans who design them.

This was produced by The WorldPost, a partnership of the Berggruen Institute and The Washington Post.

Edward Tse is the founding chief executive of the consulting firm Gao Feng Advisory Company. He has worked with the World Bank, the Asian Development Bank and the Chinese government on state-owned enterprise reform.

 

Citiscope | 5 New Tech Books for Urbanists

IAN KLAUS
NOVEMBER 2, 2017

The meeting of the two dominant megatrends of our day, technological innovation and urbanization, leaves almost no issue untouched: political stability, protest, mobility,coffee and love. Recently, Toronto announced it would partner with Sidewalk Labs, an Alphabet subsidiary, to develop the city’s eastern waterfront. The New York Police Department, meanwhile, reportedly has sought to move away from a focus on statistics.

As it comes to urbanization and technology, to paraphrase the late rock-and-roller, the future is wide open. No wonder Google is in the game as are upstarts such such as Neighborly in the “fintech” space. As the authors of the following five books — which stretch well beyond the confines of Silicon Valley — demonstrate, it is becoming increasingly difficult to think about new technologies and not consider urban spaces, and just as hard to think about new cities without weighing the great technology-delivered uncertainties to come.

“Twitter and Tear Gas: The Power and Fragility of Networked Protest”
By Zeynep Tufekci (Yale University Press)

“The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley are Changing the World”
By Brad Stone (Little, Brown and Company)

“China’s Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies are Changing the Rules of Business”
By Edward Tse (Portfolio)

There’s a popular refrain regarding urbanization in China, something along the lines of: “China has more than 10 cities of more than 5 million people that I’ve never even heard of!” The same rhetorical trick, it turns out, can be deployed in tech. Quick, name the most influential technology companies in China — companies that have all expanded hand-in-hand with the growth of China’s urban population.

The answer, according to Edward Tse in “China’s Disruptors”, includes Alibaba, Xiaomi, Tencent, Haier and Baidu. Alibaba, perhaps the best known among these companies, raised $25 billion in 2014 in what was then the largest public offering in U. S. history. Xiaomi sells more phones in China than Apple or Samsung.

Tse sets out to demonstrate China’s entrepreneurial capacity and thus to rebuff the long-held image of a top-down, state-centric economy that inhibits creativity. If you wonder what Amazon might mean for urban grocery delivery, for instance, you could do worse than considering the story of Yihaodian, the online grocery-delivery service.

“Understanding Cyber Conflict: 14 Analogies”
By George Perkovich and Ariel Levite, eds. (Georgetown University Press)

“Machine, Platform, Crowd: Harnessing our Digital Future”
By Andrew McAfee and Erik Brynjolfsson (W. W. Norton & Company)

 

Inside China’s quest to become the global leader in AI

By Edward Tse | The WorldPost
October 19, 2017

SHANGHAI — If all goes as planned, China hopes to be the world leader in artificial intelligence by 2030. If successful, Beijing’s “moonshot” initiative – recently unveiled by the government – has the potential to be a game-changer not just for Chinese society but for global geopolitics as well.

My bet is that China will indeed reach its goal over the next decade, in part because of how far it has already come. While so much of the world today lacks clear direction, China has an edge in its ability to combine strong, top-down government directive with vibrant grassroots-level innovation.

Beyond this, China has an abundance of data to train AI-learning algorithms because of its huge population of Internet users – more than 700 million. China’s thriving mobile Internet ecosystem also provides a test bed for AI researchers to collect and analyze valuable demographics and transactional and behavioral big data and to conduct large-scale experiments at a much higher level than foreign counterparts.

This combination places Beijing in a unique position to dominate AI in just over a decade. It would be imprudent to expect otherwise. To understand why, look no further than the country’s current technological advancements.

China is investing in AI at the local level
Today, a number of local governments in China are offering financial incentives to encourage AI-related innovations. With the government’s assistance, Guizhou, one of the poorest provinces in the country, has become known as China’s “big data hub.” Major Internet companies such as Apple, Alibaba, Tencent and Qualcomm have set up new big data centers in the province, in large part due to this initiative. And in 2016, government data reported a 10.5 percent growth in Guizhou’s gross domestic product, one of the highest GDP increases among China’s provinces and municipalities.

Another example is the municipality of Chongqing. It was one of the first municipalities in China to establish a bureau to support local AI development. In May, Chongqing partnered with Baidu, a local search engine, to foster AI and big data. Elsewhere in China, Xiong’an New Area, a newly established district near Beijing, and Guangdong-Hong Kong-Macau Greater Bay Area, a city cluster, have also incorporated AI in their development plans as a key economic growth engine.

Workers test the functions of a giant robot as they set up a robot exhibition in Hefei, Anhui province. Sept. 26, 2013. (Reuters/)

China is inspiring tech to prioritize AI
The Chinese government’s favorable policies have inspired innovations across a wide range of tech players in the country. Leading Internet giants such as Baidu, Alibaba and Tencent, rising start-ups like iCarbonX and SenseTime, as well as “unicorns” – companies that have reached $1 billion valuation – like Didi Chuxing and Xiaomi are either adopting AI technology already in their operations or investing in it.

Baidu, for example, has shifted its company strategy from “mobile-first” to “AI-first.” Some of its initiatives include DuerOS, a conversational AI system that can be integrated into smart devices such as speakers, televisions and refrigerators; Project Apollo, an open source platform for the research and development of autonomous vehicles; and Baidu Brain, an AI platform with 60 different AI-enabled services. Its rival Tencent has also established its own AI lab, which developed the software that famously defeated high-ranking Japanese “Go” player Ryo Ichiriki earlier this year.

Additionally, Chinese health care start-up iCarbonX is building a digital “ecosystem” using AI technology to collect users’ biological and psychological data, provide personalized health analysis and predict users’ health status. And SenseTime, a Chinese AI start-up founded in 2014, focuses on innovative computer vision and deep learning technology. In July, SenseTime claimed it had raised the largest single round investment in AI globally at $410 million.

Alpha1 Pro, a humanoid robot for entertainment and education, at the Canton Fair in Guangzhou, China. Oct. 16, 2017. (Venus Wu/Reuters)

Still, there are some significant gaps to close before China becomes the world leader in AI. According to a recent AI report from Tencent Research Institute, the number of AI companies in China lags behind those in the United States, especially in the areas of core components and processes. China still falls short of the U.S. when it comes to new ideas and research related to AI but appears to have the upper hand in the application and implementation of these AI technologies.

Another potential challenge is geopolitics. According to an unreleased Pentagon report cited by Reuters, the U.S. government views Chinese investments in American AI start-ups as a potential threat to national security. As a result, the U.S. wants to scrutinize cross-border investment in sensitive AI technologies. On top of that, the Trump administration has proposed a 10 percent cut to the National Science Foundation’s spending on “intelligent systems.” This could present potential opportunity for China, through strong government support and financial incentives, to attract U.S. talent to set up AI labs and conduct pilots in China.

China has some work to do before it successfully harnesses the potential of AI. But it has the resources and talent to reach its goal – and now it has the political will to make it a national priority. That combination will be hard to beat.

This was produced by The WorldPost, a partnership of the Berggruen Institute and The Washington Post.

Edward Tse is the founding chief executive of the consulting firm Gao Feng Advisory Company. He has worked with the World Bank, the Asian Development Bank and the Chinese government on state-owned enterprise reform.

 

From “Teaching” to “Learning”

By Dr. Edward Tse

A few weeks ago, I had a meeting with the APAC head of a major Fortune 500 company at his office in Shanghai. It was the first time we met and the meeting was very enjoyable. He told me that he had arrived in China around six months ago and was sent from headquarters to run their Asia business with a particular focus on China.

He said he thought he would come to China to “teach.” While he knew China was a fast-growing country economically (and that things in general were changing fast), he believed that China was still somewhat “backwards” in terms of corporate management know-how and lacked innovation. In fact, many people still perceive China as a “nation of copycats”.

Since landing in China, he confirmed the pace and intensity of change in China, of course. That was easy. However, he was struck by the speed and magnitude of innovations taking place in China. He cited the dock-less bike sharing phenomenon, where literally over night the streets of Shanghai became overrun with thousands of bikes. Critically, this turned out to be a product/service that people really embraced rapidly. The way that Chinese innovations are taking place, he concluded, is often quite different from what he knew back in the United States.

He concluded his story by saying, “I thought I would come to China to teach, but instead I found out that I am here to learn. Or, at least to both teach and learn.”

This kind of reflections is becoming more and more prevalent among expat executives in foreign multinational companies (MNCs) in China. In the older days, i.e., a couple of decades ago, the “I come to teach” mindset was very common. Sure enough, back then China was at the early stage of its economic and political reform and opening-up. It was still at the initial stage of its transition from a planned economy to a so-called market economy. State-owned enterprises (SOEs) were dominant and privately-owned enterprises (POEs) were only at their infancy.

Corporate management practices in the modern definition were just being picked up by the Chinese. Copycats (“Shanzhai companies”) were all over. MNC executives who came to China during this time appropriately felt the knowledge and experiential advantage. For those who were compelled, they felt they could teach the Chinese.

As China grew, things evolved rather quickly. While SOEs continued to dominate some sectors, POEs were growing much faster, especially in sectors that were not as regulated. With the increasing prevalence of technology, driven by wireless internet, the leading POEs turned out to be not only entrepreneurial but also very innovative. They identified market opportunities and swiftly created new business models, often enabled by technology, to address major market pain points. Some of them have grown extremely fast creating what we call “exponential organizations” and in the process their executives also picked up a great deal of knowledge and experience on how to better manage businesses.

Source: Baidu.com

Today, innovation and entrepreneurship continue to pick up steam in China. Entrepreneurs are getting younger. Many of them are “post-80s” and “post-90s”. They can be found not only in major hubs like Beijing, Hangzhou and Shenzhen, but also in many lower-tier cities. They are dabbling in all sorts of start-ups across many industry sectors. Even more established companies have found they needed to change and to re-invent themselves in order to capture the new opportunities or at least not be marginalized. Many Chinese business executives are looking for inspirations from the cutting-edge development in technology, strategy, business models, organizations, and processes. More of them have concluded that while they were trying to learn from (“benchmark”) the western best practices in business and management a decade or two ago, they are now less able to identify appropriate western benchmarks for their growth going forward. Many of them need to figure out their own ways.

Across many sectors, Chinese companies are becoming strong competitors to western MNCs in China. They are not only fast, agile and adaptable (“they do everything”), but also increasingly sophisticated and innovative. At least the leading ones are. Most people by now know the likes of Alibaba, Tencent and Baidu, as well as Didi and DJI, but there are lesser known entrepreneurial companies such as Liby (household cleaning products), Jovo (Chinese alcoholic beverages), Three Squirrels (nuts and snacks), Lepur (yogurt) and Hema (grocery retail) that are disrupting their respective verticals including the major foreign incumbents. Examples of such are numerous and the number is increasing every day.

Source: Baidu.com

While there are still plenty of copycat companies around, the front end of the curve is driven more and more by innovative companies. They generate new ways of doing businesses and the leaders of these businesses also tend to be good students. To this end, MNCs found that their original superior positions are no longer guaranteed. They must adapt their strategy, organization and business models to China (and increasingly transfer their learnings from China to the rest of the world). There is no doubt that in some areas MNC expat executives still have things to teach the locals. And many of the locals are still open to learn. However, the reverse is also becoming true. MNC expat executives are quickly finding that they can learn a great deal from the local businesses. “The Chinese Way” is no longer a universally negative notion but increasingly being appreciated as ingenious and value-adding.

The transition from “I come to teach” to “I come to both teach and learn” took place over a relatively short period of time. The role of China in global business has evolved significantly during this period and one would expect more to come, perhaps with even higher speed and stronger intensity.

 

China Daily | In the spotlight

By Andrew Moody | China Daily Europe | Updated: 2017-10-13

On the eve of the 19th National Congress in Beijing, which will set the tone for the country’s direction over the next five years, there is unprecedented interest around the world

Beijing is set to play host to the biggest political meeting in China for five years, which will set the direction for the world’s second-largest economy into the 2020s.

The 19th National Congress of the Communist Party of China, which opens on Oct 18 in the Great Hall of the People with 2,287 delegates in attendance, will not only elect new Party leaders but will outline the strategy for the next five years.

This period is set to see China transition into a “moderately prosperous society” (and therefore avoiding the so-called middle-income trap that has befallen many developing countries) by the 100th anniversary of the founding of the Communist Party of China in 1921.

The 19th CPC National Congress is also likely to attract more global attention than any of the previous congresses, since what happens in China because of the size of its economy and influence increasingly has global repercussions.

This is particularly the case since the launch of China’s Belt and Road Initiative, one of the flagship policies of the past five years, which aims to build infrastructure and many other connections across the world.

President Xi Jinping, who became general secretary of the Central Committee of the CPC at the 18th CPC National Congress in November 2012, has also placed China at center stage with one of the most proactive foreign policies of any current global leader.

With his speech at the World Economic Forum in Davos in January, he is now seen as a true champion of globalization in a world where the specter of protectionism looms large.

Martin Jacques, author of When China Rules the World and visiting professor at the China Institute of Fudan University in Shanghai, says China is now seen differently from how it was perceived at previous congresses.

“China tended to be seen as just an economic story. It is now not just an economic power but a political, cultural and military and intellectual power also. You can see a quite dramatic change that has taken place,” he says.

“The country is fulfilling Xi Jinping’s concept of the Chinese Dream and becoming a rejuvenated and comprehensive power.”

Hugh White, professor of strategic studies at Australian National University and a former adviser to former Australian prime minister Bob Hawke, says China has actually begun to reshape the global order over the past five years.

“When people look back over this period between the 18th and the 19th CPC national congresses the main thing they will see is the way China has started to redefine its place in the world, in particular its place in Asia, both strategically and economically,” he says.

“It has been an extremely active period in China’s foreign policy and what we are seeing is the dividends from 35 to 40 years of remarkable economic growth.”

Frank Pieke, professor of modern Chinese studies at Leiden University in the Netherlands, also believes China’s position on the world stage has been transformed.

“The most important success of the Xi Jinping era is the enhanced international profile of China – the fact that China has become more than the superpower in waiting but is now taking over the helms of power in the world.”

A cargo container is loaded onto a train at the Urumqi West Station in the Xinjiang Uygur autonomous region. By the end of this year, the number of locomotives setting off from the China-Europe Freight Train Logistic Center in the capital of Xinjiang will top 700. It is one of China’s Belt and Road Initiative projects, which aim to build infrastructure and many other connections across the world. Chen Yehua / Xinhua

The Sinologist, who is also academic director of the Institute for Area Studies at the university, says China has achieved this position sooner than it would ideally have liked.

“This is not China’s fault. The unpredictability of (US President) Donald Trump’s White House has forced China to take a role in the world it does not yet want. Eventually, yes, but not necessarily at this moment.”

The principal achievements of the past five years, apart from an active foreign policy, have been maintaining China’s pace of economic growth while continuing to reform; the Belt and Road Initiative; the establishment of both the Asian Infrastructure Investment Bank in Beijing in 2015 and the New Development Bank (the BRICS bank) in Shanghai in 2014; initiatives such as the Made in China 2025 strategy aimed at upgrading the economy into areas such as intelligent manufacturing and robotics; as well as a vigorous anti-corruption campaign aimed at Party building.

On the economy, China’s GDP is on course to increase this year over the previous year for the first time since 2010. It grew in the first half by 6.9 percent.

Those who predicted a hard landing throughout the past five years have been continually confounded.

Indeed, the economy has been able to find new areas of growth through continued rebalancing, a vibrant tech sector and new sources of business for traditional heavy industries in Central Asia and elsewhere as a result of the Belt and Road Initiative.

There have been setbacks such as a major stock market correction and speculation against the Chinese yuan following an exchange rate adjustment in August 2015, but the last half decade has seen overall relative financial stability.

Stephen Roach, senior fellow at Yale University’s Jackson Institute of Global Affairs and one of most respected observers of China in the West, says the resilience of the Chinese economy has prevented the global economy from plunging into recession.

He points out that from 2012 to 2016, without China’s contribution, the global economy would have grown by just 2 percent compared with the 3.3 percent it actually achieved.

“When the world economy grows anywhere below 2.5 percent that is a recession. There are 200 countries in the world and in a global recession usually half of them are contracting and the other half expanding. The only year there was actually a decline in world GDP post-World War II was in 2009, when it was down by about a tenth of a point,” he says.

Roach, formerly chairman of Morgan Stanley Asia and author of Unbalanced: The Codependency of America and China, says strides have also been made with rebalancing the economy over the past five years.

“There has been a rebalancing away from the producer mentality that was supported by exports and investment to an increasing consumer mentality that draws support from personal income and the services sector.”

Louis Kuijs, head of Asia economics at Oxford Economics, does not expect to see a major change in the direction of economic policy emerging from the congress, with President Xi stressing the importance of “stability on all fronts”.

“Unlike many observers, I do not expect major economic policy shifts. Stability of the economic system remains the key policy objective, and this is not compatible with bold, potentially disruptive reforms and a more aggressive reining in of credit growth that others appear to foresee,” he says.

Kuijs, a former senior economist at the World Bank, says he expects a continued focus on reining in financial risk and reducing leverage consistent with the outcome of the Financial Work Conference in July.

“Something will have to change so that credit growth does not continue to grow significantly faster than GDP. I don’t think China, however, is heading for a hard landing anytime soon.”

Roach at Yale agrees that rising debt remains an issue but believes the problem remains highly manageable.

“The fears of a debt crisis are vastly overblown because China has an ample cushion of domestic savings, so the debt it owes is to itself and not foreign investors who would be likely to flee at the slightest problem.”

One of the flagship policies of the last five years has been China’s Belt and Road Initiative, which was launched by President Xi in September 2013.

The initiative, which involves creating greater connectivity and cooperation between countries across the world, has drawn major international interest.

The Belt and Road Forum for International Cooperation in Beijing in May was attended by no fewer than 29 foreign heads of state and government, including Russian President Vladimir Putin and Turkish President Recep Erdogan.

China pledged an additional 100 billion yuan ($15.2 billion; 12.8 billion euros; £11.5 billion) to the Silk Road Fund, which was originally launched in November 2014 with an initial contribution of $40 billion.

It also directed extra funds to the two big policy banks, with the China Development Bank receiving 250 billion yuan and the Export-Import Bank of China 130 billion yuan to set up special lending facilities.

Jacques, the British journalist, author and academic, says the 19th CPC National Congress will usher in a period when the initiative really takes shape and form.

“We will be moving from announcements and proposals to projects actually coming on stream and we will see more clearly what the results are going to be and how China will manage to broaden and deepen its range of connections around the world.”

Rana Mitter, director of the University of Oxford China Centre, agrees that Belt and Road is now firmly on the map.

“When you refer to Belt and Road, there is now no longer any question of people scratching their heads and wondering what it is about. They now know what you are talking about,” he says.

“Whatever you say about the initiative, it is a vision, an aspiration, and although there is a tremendous amount still to do, there is a certainty in the view of the world the initiative conjures up, about how it is going to be reconnected, particularly in a Eurasian and East Asian context.”

Kerry Brown, professor of Chinese politics and director of the Lau Institute at King’s College London, believes problems in the West such as the confusion about the future direction of US policy and issues such as Brexit destabilizing the European Union have created a huge space for Belt and Road to grow and develop.

“The relative disarray in the rest of the world and China’s relative stability means it is now in a much stronger geopolitical position, and grand narratives such as Belt and Road have become more prominent.”

The focus of the last five years has also been on upgrading the economy. The launch of the Made in China 2025 strategy in March 2015 reaffirmed the continuing importance of manufacturing to the Chinese economy despite the government also trying to achieve a parallel macroeconomic shift toward consumption and services.

The strategy – similar in approach to Germany’s Industry 4.0 initiative – places emphasis on 10 key areas: high-speed rail and railway equipment; high-end numerical control machinery and automation; maritime engineering equipment and high-tech vessel manufacture; new materials; aerospace and aviation equipment; electrical equipment; energy saving vehicles, agricultural equipment; information technology; and biomedicine.

Edward Tse, chairman of Gao Feng Advisory, a management consultancy, says China has a proven track record in such a top-down approach to driving innovation.

“If you look at China’s current tech hubs such as at Shenzhen and Zhonguancun (the Beijing science park) and places like Hangzhou, the government has played a major role,” he says.

“If the government decides it wants to move industry in a certain direction it can provide subsidies, set up capital funds, co-invest in startups, provide technology parks with reasonable rents and create incubators.”

Tse, also author of China’s Disruptors: How Alibaba, Xiaomi, Tencent and Other Companies Are Changing the Rules of Business, says it is not a unique approach but has been one of the most effective around the world.

“A lot of countries have done the same thing, including Malaysia, South Korea, Singapore and even the United States, but China has probably had a higher batting average of success.”

 

China Daily | Tapping Growing Potential of AI Industry

By Edward Tse/Jackie Tang | China Daily | Updated: 2017-10-17

The global artificial intelligence market has experienced explosive growth in recent years, and this game-changing technology is now considered the “next big thing” after the mobile internet.

AI has a long development history but recent breakthroughs have led to a new inflection point. Advances in deep learning neural network algorithms, alongside improved computer processing power, and the abundance of big data that serves as valuable training data are all contributing to the rise of the AI industry.

China’s AI industry has been growing in an exponential manner. According to Tencent Research Institute, the number of AI companies has increased more than tenfold over the past 10 years, from 57 AI companies in 2007 to 592 by June 2017. Remarkably, the number of newly established AI startups in 2015 was equivalent to the total number of AI start-ups from 1999 to 2012. In terms of fundraising, according to The Economist, Chinese AI companies received $2.6 billion investment from 2012 to 2016 while US peers received $17.9 billion over the same period. However, China has been catching up quickly in recent years.

The Chinese government has positioned AI as a national strategic priority. China, earlier seen as a technology development laggard, aims to become a world leader in AI to drive its economic transformations with it. In the most recent government policy document outlining the New Generation AI Development Plan, the State Council, the country’s Cabinet, has declared an ambitious goal of becoming a world leader in AI innovation with a market size of over 1 trillion yuan ($151.86 billion) by 2030. Policies such as Made in China 2025, the Three-year Guidance for Internet Plus AI plan, and the New Generation AI Development Plan are all top-down initiatives aiming to take the nation’s AI technology forward. Furthermore, local provincial and city governments are also offering preferential policies and generous financial incentives to AI start-ups. For example, the city of Tianjin recently set up a 30 billion yuan fund to support the local AI industry.

Data is the key to unlocking the potential of AI development. With 751 million internet users and 724 million smartphone users, Chinese are embracing a 24/7 connected lifestyle and adopting all kinds of new digital products and services. Their ubiquitous connectivity has led to tremendous amount of data that can be further monetized. And with the massive amount of training data sets as input, the AI algorithms are continuously self-tuning and improving. Companies are now able to leverage AI-enabled tools to develop a more comprehensive and dynamic understanding of their customers and competitors.

This vibrant innovation and entrepreneurial ecosystem has also fueled China’s AI development. Chinese AI-based patent applications grew 186 percent between 2010 and 2014, a huge increase from the previous five-year period. Also, in the past two years, all the top-performing teams in the ImageNet Large Scale Visual Recognition Challenge, an influential AI computer vision contest, were Chinese, while half the teams were Chinese-based. Meanwhile, Internet giants such as Baidu, Alibaba and Tencent, along with rising startups like Mobvoi, iCarbonX, Megvii and SenseTime, and unicorns like Didi Chuxing and Xiaomi are all investing in or experimenting with AI technology.

Source: Baidu.com

Baidu is one of the major leaders in AI development in China. It established the Institute of Deep Learning in 2013 and the Silicon Valley AI Lab in 2014. In 2017, Baidu announced a shift in its strategy from mobile-first to AI-first, and recruited Qi Lu, a former executive vice president at Microsoft, as its new COO. In particular, it has launched an open-source platform for autonomous driving solutions, namely Project Apollo, to transform the global research and development landscape of self-driving vehicles.

Yet, China’s AI industry still faces major challenges. First, China’s academia is not doing much in fundamental scientific research, especially in the areas of advanced computer algorithms and computing infrastructure. So far, the majority of groundbreaking research is still being done in the West. Second, AI startups are good at launching new products and features to satisfy unmet market demand. However they primarily rely on business model innovation rather than technology innovation. Third, governments and venture capitalists tend to provide more incentives to commercial applications of technology over fundamental technology research, which takes more time and involves more risks.

The success of China’s ambitious goal to become a world leader in AI by 2030 will hinge on the nation’s innovation capabilities and long-term strategic vision. Could China eventually achieve global leadership in AI? Like everything that is related to business and technology innovations these days, it would be imprudent to count China out.

Edward Tse is founder& CEO, Gao Feng Advisory Company, a global strategy and management consulting firm based in China and author of China’s Disruptors.
Jackie Tang is a consultant with the firm.

 

A Chinese Carmaker Agrees to Buy a Danish Investment Bank

Oct 7th 2017 | The Economist

Despite curbs on outward investment, Chinese firms are expanding into European banking

A COMPANY that moves up the value chain from refrigerator parts to cars is impressive but not that surprising. A car company that buys an investment bank is audacious. But Zhejiang Geely Holding Group, a conglomerate based in Hangzhou, China, did not become big by paring its ambitions. Having successfully made the fridge-parts-to-cars transition at home, it went global in 2010. It acquired Volvo, a Swedish carmaker, from Ford of America. Now Geely is back in Scandinavia for another acquisition. This time it is buying one of Denmark’s biggest banks.

Saxo Bank announced on October 2nd that Geely would acquire 51.5% of its shares. It will spend over $800m on the deal, which still requires regulatory approval. Sampo Group, a Finnish insurance company, will acquire 19.9% of Saxo shares for €265m ($311m), and Kim Fournais, Saxo’s co-founder and chief executive, will retain 25.7%. The sellers are Sinar Mas, an Indonesian conglomerate, and TPG, an American private-equity firm.

Saxo was an early adopter of online securities trading and still invests heavily in financial technology. It makes a substantial portion of its profits from selling trading platforms to other firms. Daniel Donghui Li, Geely’s chief financial officer, says Geely hopes to expand Saxo’s technologies into Asia. Besides facilitating this expansion, Geely does not intend to change how Saxo operates, let alone change its business model to finance car sales.

Geely is not the first Chinese firm to take control of a European bank. In September Legend, the largest shareholder of Lenovo Computers, announced that it would acquire 89.9% of Banque Internationale à Luxembourg, the oldest private bank in the Grand Duchy, from a Qatari company. Legend said it wanted to provide banking services to companies taking part in China’s flagship “Belt and Road” project to build a latter-day Silk Road to Europe.

Other Chinese firms have bought smaller stakes in European banks. In May HNA Group, a part-owner of Hainan Airlines, increased its holding in Deutsche Bank to 9.9%, becoming its largest shareholder. Fosun, a big consumer group, owns 24% of Millennium BCP, Portugal’s largest listed bank. Unlike Geely, however, Legend, HNA and Fosun have experience in the Chinese financial sector.

After 2014 Chinese companies had sharply increased their direct investment in foreign companies (see chart). Large firms made high-profile acquisitions of property, sports teams, film companies and other assets with tenuous connections to their core activities. Concerns over capital outflow and corporate debt led the Chinese government to introduce regulations limiting outward investment.

Geely’s purchase of Saxo Bank suggests that Chinese companies are gradually regaining their appetite for foreign deals, even outside their core businesses. According to Edward Tse, chairman of Gao Feng, a firm that advises on the Chinese market, the Chinese regulations were primarily directed at a few companies that “splashed cash” on unwise deals. Geely, seen as having already successfully swallowed one prestigious foreign firm, may worry the authorities less.

This article appeared in the Finance and economics section of the print edition under the headline “Freezers to finance”