The AI China Report #1
Your executive summary on the geopolitics of AI & China 🇨🇳 - Issue #1
Welcome to the inaugural edition of The AI China Report, your gateway to the ever-evolving landscape of Artificial Intelligence in China. As the world's most populous nation and a global technological powerhouse, China's journey into the realm of AI is worthy of significant focus - it’s one of the most important issues of our time and will continue to become more important over the next decade. In this newsletter, we embark on a fascinating exploration of the state of AI in China, uncovering its achievements, challenges, and future prospects.
QUOTE OF THE WEEK
“If you’re trying to create structures that make AI something that overall is a net benefit to humanity, then you can’t just ignore the second-biggest economy in the world.” - U.K. Chancellor Jeremy Hunt on inviting China to its global AI summit.
NEWS ROUNDUP
Terrifying headline of the week: “China Aims To Replicate Human Brain in Bid To Dominate Global AI”. Gao Wen, a leading artificial intelligence researcher at the Peng Cheng Laboratory is working to build a “city brain” that will integrate with China’s smart cities to better allow China to track human faces, voices, and mannerisms of people on the city streets. (Newsweek)
Britain invited China to its global AI summit in November, emphasizing the importance of including major AI players to address the technology's risks. Amid efforts to strengthen ties with Beijing, the UK aims to become a leader in AI regulation, discussing its potential dangers and benefits while seeking a more moderate regulatory approach compared to the EU's stringent AI Act. (Reuters)
Chinese tech giant Alibaba announced that it’s opening its AI model (called Tongyi Qianwen) to the public after getting regulatory approval from the Chinese government. Alibaba enterprise customers will be able to use it to build customized large language models. (Reuters)
While AI is still riding the hype cycle in the U.S., in China many funded AI startups are navigating roadblocks as they go to market. Factors include a slowing economy with reduced corporate budgets, a lack of clear regulation guidelines from the government, chip shortages (due to U.S. sanctions), and a stall in venture investment as investors are in a “wait and see” mode as they look for which startups will emerge as market leaders. (Wired)
China has been using AI to seed misinformation. Researchers at Microsoft found a Chinese disinformation campaign claiming the recent wildfires in Maui were not a natural disaster, but instead a secret “weather weapon” being tested by the U.S. They used AI to generate a series of images, bolstering their false report - which was shared across popular social media channels globally and translated into 31 languages. (NYT)
“We will not need China’s approval”, said Cisco CEO Chuck Robbins when asked about the tech giant’s $28B acquisition of data and cybersecurity platform Splunk. Notably, China has been a problem for global U.S. tech companies making large acquisitions. U.S. tech giant Broadcom is still dealing with Chinese regulators getting it’s $61B acquisition of VMware approved. (CRN)
DATA TO USE
ONE BIG STORY: HUAWEI’S SECRET CHIP FACTORIES
Tensions between the U.S. and China have continued to heat up over the past year, especially after the mainstream interest and boom of adoption in AI technology that shook the world last year.
It began on October 7, 2022 when the Biden administration announced sweeping restrictions on the sale of semiconductor technology to China, which many considered “a declaration of economic war on China”.
The restrictions limited U.S. exports of semiconductor chips, which use graphic processing units (GPUs) to power AI applications. This included setting a cap on the maximum processing speed of chips that could be sold to China. The goal being to slow China’s development of new AI technologies, as fears have grown of a winner takes all scenarios - both from an economic and military perspective - in the race to develop the most powerful AI tech.
Enter Huawei Technologies, one of China’s leading telecommunications companies and the second-biggest smartphone maker in the world, after Samsung. Last year, the Chinese tech giant received an estimated $30 billion in funding from the Chinese government to move into chip production.
Bloomberg recently reported that Huawei is building a secret string of semiconductor factories across China to get around the U.S. sanctions and make China less reliant on chips from the U.S. and Taiwan - the two current leaders in advanced chip production. Huawei itself was put on a blacklist by the Biden administration in January which blocks U.S. companies from selling and exporting to Huawei.
U.S.-based Nvidia (NASDAQ: NVDA) is one of the global leading chip makers, having recently experienced a doubling of its stock price due to demand for its GPU chips to create and power new AI technology. For context, Nvidia is now the 6th largest public company in the U.S. joining the likes of Apple, Amazon, and Microsoft as one of the few companies with a $1 trillion market cap.
Nvidia responded to U.S. restrictions by creating new, less powerful chip products specifically for China that fall under the limit of processing speeds and data transfer rates imposed by the Biden administration. This led to Chinese tech giants placing orders for over $5 billion worth of these handicapped chips. The U.S. is now considering increasing restrictions that would stop all shipments of chips made by Nvidia and other U.S. makers to Chinese companies without first obtaining a license.
These less powerful chips will likely make it more difficult for Chinese tech companies to train powerful AI models than their U.S. counterparts, giving U.S. companies a head start in developing stronger models. The rate of improvement of AI tech has been growing incredibly fast, and the U.S. hopes that this head start will allow them to widen the gap over time to the point where China cannot catch up, even when they develop the capabilities to make comparable chips themselves.
DATA DEEP DIVE: THE STATE OF AI 2023
The McKinsey Global Survey published their current state of AI report. They polled a panel of thousands of global executives and managers about their usage and view on AI in business.
We analyzed the report for the salient points below:
The survey confirmed that 33% of survey respondents say their organizations use generative AI (gen AI) tools regularly in at least one business function.
Nearly 25% of C-suite executives say they are personally using gen AI tools for work.
28% said that gen AI is a priority on their boards’ agendas.
40% said their organization will increase their investment in AI.
Inaccuracy is the most important risk factor that organizations fear from using AI, closely followed by cybersecurity and IP infringement. Organizations are not yet addressing the potential risk of using AI. Just 21% of organizations report that they’ve established policies governing employees’ use of gen AI technology.
79% of the business population reports they’ve had exposure to gen AI and 22% said they use it regularly. Usage is highest among workers in the technology sector in North America, with consistent usage across all seniority levels.
Marketing & Sales (14%) and Product & Service Development (13%) are the two most common business functions that are using gen AI.
Gen AI has the potential to increase value to as much as 9% of global industry revenue. Knowledge-based industries such as banking, pharma, and medical products are up to 5% and education up to 4%
By contrast, manufacturing-based industries, such as aerospace, auto-motives, and advanced electronics, could experience less disruptive effects.
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