We’ve written before that investors who write off China as a technological copycat incapable of innovation, do so at their peril.
And we talked about how China accounts for more than its fair share of “unicorns”, multibillion dollar tech startup companies.
But there is one area in particular that the Chinese are set to make extraordinary progress.
Over the past two years, this area has gained significant government policy support. And when something becomes a national priority in China, you had better believe that the money and human capital (or “dollars and sense”) will follow.
Artificial Intelligence is going to be big in China
The smokestack days of China’s economic ascendancy are fading. In its place a new, tech-innovative smart economy is being built.
A combination of government support, huge corporate research and development budgets, a ring-fenced economy (i.e., not particularly “open” to foreign competition), and a 1.4 billion-strong mobile-connected domestic population, have set the stage for China become the global leader in artificial intelligence (AI) over the next decade.
Bolstered by government support
Last year, China’s National Development and Reform Commission (NDRC) published a three-year implementation plan for AI development, addressing intellectual property protection, system standardisations and human capital development.
In July of this year, a national AI development plan was published by the State Council. The aim of the plan is to foster research and implementation of AI technology across the entire economic spectrum, from private enterprise to national defense.
As we’ve pointed out many times before, when you see a significant shift in policy support for a particular industry it’s good to be an owner of any stocks that benefit from growth in that particular sector. Why? Because Chinese government support means growth. (We talked about this in the case of China’s environmental policy in our January edition of The Churchouse Letter earlier this year – that particular stock recommendation has returned 20 percent thus far).
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The Chinese are market leaders
The former co-president of Google’s China operation (well, before Google was closed down) pointed out recently that nearly half of all AI academic research papers were authored by Chinese-national researchers, both in China and abroad.
To say that AI is a priority for China’s top internet companies would be an understatement.
Internet search firm Baidu (Exchange, NASDAQ; Ticker, BIDU) opened an AI lab in Silicon Valley back in 2013.
E-commerce giant Alibaba Group’s (Exchange, NYSE; Ticker, BABA) Chairman Jack Ma has stated that “large-scale computer and data are the father and mother of artificial intelligence”. With its half a billion users, generating millions of data points 24 hours a day, Alibaba can process up to 175,000 transactions a second (by comparison Visa does around 25,000 per second).
Alibaba’s “E-commerce Brain” is a system that uses real-time data to build predictive models, built using AI, that are constantly updated to take in users’ digital data footprint and minimise the gap between browsing and buying… and of course, serve up items you are likely to buy (when you don’t even know it) onto the screen in front of you.
Then there’s Tencent Holdings (Exchange, HKSE; Ticker, 700), with nearly a billion monthly active users of its WeChat mobile app, who earlier this year announced the opening of an AI Research Centre located in Seattle (who else is in Seattle? Amazon and Microsoft…). It announced in August the formation of an alliance of companies to build AI for autonomous driving in China.
Swing the BAT
Baidu, Alibaba and Tencent, otherwise known as “BAT”, are the trio of China’s internet giants. Together they account for nearly a trillion dollars of market capitalisation.
They’re all pouring enormous financial and human capital resources into AI. And China’s economy is ripe for these companies to reap the rewards, with 1.4 billion providers of digital information (swipes, clicks, buys… you name it), which is the fuel required for advances in AI.
By 2020 it’s expected that China will be the largest generator of digital information in the world. And whilst competition for AI talent is fierce – but according to the World Economic Forum, over half of China’s university graduates specialise in Science, Technology, Engineering and Mathematics (STEM). That works out to 4.7 million STEM graduates a year – or 4.1 million more, or 8 times as many STEM graduates as the U.S.
Swing the BAT.