China’s plan to push its own fintech and AI industries worries Western businesses

Slava Solodkiy
Mar 17, 2017 · 7 min read

Beijing is drafting a national development plan on artificial intelligence and setting up a special fund as part of an effort to push the technology’s application in the economy and national security, said China’s top technology official.

Chinese consumers are rapidly moving towards non-bank and cashless alternatives, such as Alibaba’s $60 bln financial application Alipay. To cope with the rapid growth rate of its FinTech industry, Chinese state-owned companies launched a $1.5 bln fund to support emerging FinTech startups and technologies.
The consortium of Chinese state-owned companies which includes Hong Kong-listed Credit China FinTech Holdings, Shanghai Xinhua Distribution Group, China Huarong International and 8 other major organizations in the mainland, established a fund known as “Asia FinTech Merger and Acquisition Fund of Funds” to ensure every market within the Chinese FinTech industry can operate with necessary capital.
Sheng Jia, Executive Director of Credit China FinTech stated: “Leveraging on the fund partners’ experiences and competitive advantages in brand recognition, industry resources and expertise, the Fund aims to invest in innovative FinTech enterprises with potential and help them to be the FinTech leaders with our technical know-how and capital resources.”
According to various sources, the fund will support startups in a wide range of categories within the FinTech industry, including big data, artificial intelligence, mobile payments, supply chain financing and Blockchain technology, developing a portfolio which covers every aspect of the country’s FinTech industry.

Wan Gang, the minister of science and technology, said that the AI plan, which aims to facilitate the adoption of the technology in a wide range of areas, including “economy, social welfare, environmental protection and national security”, is expected to be released soon after the National People’s Congress and Chinese People’s Political Consultative Conference, the annual meeting of China’s parliament. “In the meantime, the central government will set up a special fund for the fundamental research and core technologies [of artificial intelligence],” Wan said at a press conference on the sidelines of the ongoing Two Sessions, without disclosing the size of the fund.
Wan’s comments on AI comes amid calls by some of China’s most influential business and technology leaders to make the technology a priority on the government’s agenda. From the founder of the largest Chinese internet search engine Baidu, the owner of smartphone maker Xiaomi, and the founder of Geely Automobile, which bought Volvo, business tycoons who meet in Beijing this week for the Two Sessions are calling for government to lead the charge in getting Chinese enterprises to collaborate on AI research, and facilitate the industrialising of the technology as they see there is a big chance for China to surpass the United States as a global superpower on AI.

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However, one analyst said Beijing’s expressed support for AI was unlikely to result in significant financial backing for the sector because central government resources had already been committed to helping a wide range of special interests, including special funds that back poverty alleviation to environmental protections initiatives.
Venture capital funding is another source of support for the sector. In terms of countries, the US is the global leader having raised US$8.1 billion for startups in the sector to date, according to market research firm Venture Scanner, which tracks AI funding in more than 70 countries. China ranks No 2 globally, with US$1.1 billion raised, while the rest of the world combined amounts US$3.1 billion in funding to date.

On Dec. 6, 2016, thousands of translators filed into office buildings across mainland China to pore over brochures, letters, and technical manuals, all in foreign languages, painstakingly rendering their texts in Chinese characters. This marathon carried on for 15 hours a day for an entire month. Clients that supplied the material received professional-grade Chinese versions of the originals at a bargain price. But Baidu (often described as the Google of China), the Beijing-based company that organized the mass translation, got something potentially more valuable: millions of English-Mandarin word pairs with which to train its online translation engine.
China is infamous for its knockoffs, whether luxury handbags or web startups. But the country’s leadership seems to understand that when it comes to artificial intelligence, cheap imitations just won’t do — not when its rivals include Alphabet, Facebook, IBM, and Microsoft.
Of the more than 20 billion yuan ($2.9 billion) Baidu has spent on research and development over the past two and a half years, most has been on AI, according to comments co-founder and Chief Executive Officer Robin Li made at the lab’s launch last month. But China’s national interest isn’t his main motivation: Baidu’s revenue growth fell to about 6 percent last year, from an average of more than 30 percent over the prior three years. The search ad business, which contributed the lion’s share of its 70.5 billion yuan in sales in the fiscal year ended on Dec. 31, is under siege from local rivals. A September report from EMarketer Inc. noted that Alibaba Group Holding Ltd. had overtaken Baidu to become the leader in China’s digital ad market. Baidu hopes AI can help it reclaim share in search, as well as ensure success in newer ventures. “The era of mobile internet has ended,” said Li in a March 10 interview. “We’re going to aggressively invest in AI, and I think it’s going to benefit a lot of people and transform industry after industry.”
Baidu’s portfolio of web properties gives it access to one of the largest and most detailed sets of consumer data ever produced in China, which — in theory at least — should give it an edge in building AI-infused products and services for the mainland. Thanks to Nuomi and Waimai, the company knows what Chinese households buy and eat, while Ctrip.com, the world’s second-largest online travel agent, reveals where they want to holiday. Every month 665 million smartphone users surf its mobile portal and apps, while 341 million use Baidu Maps to reach their destination. “In the next three to five years all those areas have the potential to become another Baidu,” company President Zhang Ya-Qin says, referring to Baidu’s $60.2 billion market capitalization. “Right now it’s time to make some bets.”

Also China has charted out a $300 billion plan to become nearly self-sufficient by 2025 in a range of important industries, from planes to computer chips to electric cars, as it looks to kick-start its next stage of economic development.

But big companies in the rest of the world worry that it is more than that: an unfair advantage in China’s home court, and perhaps elsewhere. A report by a European business group on Tuesday said the “Made in China 2025” program, which calls for enormous Chinese government assistance to 10 industries, would force out competitors from abroad and lead to government-subsidized global players that would compete unfairly. Indeed, the Chinese government’s plan says Chinese industries that benefit should own as much as 80 percent of their home market in just eight years. “The Chinese make it clear that they want to be the global champion” and are trying to carve out market share now, said Joerg Wuttke, the president of the European Union Chamber of Commerce in China, which wrote the report.
The plan’s mechanism is simple: It would provide large, low-interest loans from state-owned investment funds and development banks; assistance in buying foreign competitors; and extensive research subsidies, all with the goal of making China largely self-sufficient in the targeted industries.
The Chinese government has long worried that the country’s economy is still too concentrated in fairly low-end manufacturing. Making and assembling Apple iPhone components, for instance, is done by hundreds of thousands of workers in China, while the better-paid, value-added design and marketing work is done in the United States, although by many fewer employees. Although a large-scale shift of factories from the West to China has created tens of millions of Chinese jobs, the country’s leaders worry that an increasingly well-educated younger generation is rejecting factory work for higher-paid office jobs.
But the report by the European Union Chamber of Commerce in China was lengthy and critical. The United States Chamber of Commerce in Washington plans to issue a similar report. “Chinese high-tech investments need to be interpreted as building blocks of an overarching political program. It aims to systematically acquire cutting-edge technology and generate large-scale technology transfer. In the long run, China wants to obtain control over the most profitable segments of the global supply chains and production networks,” according to a report on “Made in China 2025” released in December by the Mercator Institute for China Studies, a German think tank.

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