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China and AI: Here Are the Most Recent Developments

 5 min read / 

For many decades, China has been seen as a country where labour has played a central role in the economy of growth. This was mainly related to the low-cost factor present in the country; something well known across the world.

However, it seems that those days are partly over, as Artificial Intelligence (AI) is rapidly spreading around the dragon’s mainland, especially throughout large cities such as Shanghai and Beijing. Some specialists even indicate that China is taking the lead in some fields and is thereby catching up with the United States.

It is not surprising that the Chinese state significantly supports AI developments and is one of the main reasons why China is quickly developing in terms of AI.

This article describes the latest Chinese developments in the field of AI. China, and specifically Beijing, is famous for its surveillance of the public. It seems the latest AI investments lead to even more monitoring. The large question that can be formed at this point is whether more monitoring throughout Beijing and China is a positive development?

Chinese State & Company Investments

The capital city of China is highly interested in the latest technological developments around the world. The city wants to use the latest technology to enhance the city’s surveillance, crime prediction and enable the transformation of city services. The state wants to back up this enhancement by heavily investing in AI. Moreover, China wants to be the world leader in the area of AI by 2030, which could potentially lead to an industry worth $150bn.

Recently, a fund – which had state support – received a total amount of $460m to invest in a facial recognition start-up called Megvii. Some say this is the largest individual investment round for a single AI company so far.

It seems China is having several AI development plans for the coming years, especially because China’s Ministry of Finance has plans to invest $1bn in AI oriented projects this year.

Considerably large Chinese players like Alibaba, Baidu, and Tencent are planning to further develop AI. These developments are not only executed in China itself. Significant investments are made in the United States, where Baidu opened a second research lab in Silicon Valley, California. The main reason behind this movement is to onboard local talent to achieve Baidu’s goal of introducing automatic vehicles on the road by 2020. Alibaba is increasing its investments in AI as well – recently, the company announced it would spend $15bn over the next three years to recruit top talent for AI oriented projects.

The large question is: how will China achieve its ambitious goal of being the leading country in AI by 2030? Chinese companies have a huge playing field in terms of data related to Chinese consumption, payment, health care and transportation, because there are not many privacy regulations and discussions surrounding it.

This means that Chinese companies, like Tencent, have access to about 750 million internet users as input for algorithms and further product testing. Moreover, those same companies can even access national data, like personal ID information, to use as input for facial recognition innovations.

Downsides from the Western Perspective

However, there is also a downside if China is analysed from a western perspective. The Trump administration has recently announced that a further Chinese development of AI could precipitate military enhancement.

This statement was just made in the beginning of the year in front of the U.S. China Economic and Security Review Commission. Consequently, the US is placing certain restrictions in place that prevents further Chinese investments in Silicon Valley, California.

Chinese Prediction of Crime

Recently, Meng Jianzhu, head of the Chinese Communist Party’s central commission for political and legal affairs, has announced plans to use AI for the prediction of crime and other violent acts in China. AI will recognise behavioural patterns in society and local police forces will be informed about high-risk profiles. These high-risk profiles can potentially be traced and a likely crime or violent action can be prevented accordingly. The following statement was made by Meng Jianzhu about AI and using it for crime prediction:

“Artificial Intelligence can complete tasks with a precision and speed unmatchable by humans, and will drastically improve the predictability, accuracy and efficiency of social management.”

Nevertheless, there are some critics of this. Many people question Beijing’s use of technology to increase its control over Chinese inhabitants. In the end, it is all about privacy in China. The Chinese authorities have no clear limitations since there are no clear privacy regulations in place related to AI.

Conclusion

In short, it is quite a question in which direction Chinese AI developments will go and whether the country is able to reach its ambitious 2030 goal. Regulation-wise, there are some additional opportunities, such as subsidies and loose regulations surrounding AI, for companies and locals to speed up the process of AI-oriented projects.

From a foreign investment perspective, the scenario is uncertain at present, especially if the recent political movements are analysed from a US perspective with regards to the trading and foreign investment relationship between China and America. China is on its way to catch up with the US in terms of AI; however, it still has a long road ahead before it reaches its 2030 goal.

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Asia

Google to Open Artificial Intelligence Centre in China

 2 min read / 

Google AI China

Google will be opening its first artificial intelligence (AI) research centre in China, despite many of its services being blocked there.

Fei-Fei Li, Chief Scientist of Google Cloud, said:

“I believe AI and its benefits have no borders. Whether a breakthrough occurs in Silicon Valley, Beijing or anywhere else, it has the potential to make everyone’s life better for the entire world. As an AI first company, this is an important part of our collective mission. And we want to work with the best AI talent, wherever that talent is, to achieve it.”

The research centre will focus on basic AI research, and will consist of a team in Beijing, who will be supported by Google China’s engineering teams.

Google’s search engine and its Gmail are banned in China. However, the country has 730 million internet users, making the market too large to ignore.

Google is not the only tech giant facing restrictions in China. Facebook is also banned, while Apple’ App Store has been subject to censorship. In order to comply with government requests, Apple removed many popular messaging and virtual private network (VPN) apps from its App Store in China earlier on this year.

China has recently announced plans to develop artificial intelligence, and wants to catch up with the US. However, human rights groups are concerned by China’s use of artificial intelligence to monitor its own citizens.

Keep reading |  2 min read

China

Jack Ma Backs China’s Government

 1 min read / 

Jack Ma

The Alibaba founder said that China’s one-party system benefitted the nation.

Speaking onstage at Fortune magazine’s Guangzhou conference, the Chinese billionaire contrasted the Chinese one-party system with the relative instability of the US political system. Ma said that the Chinese system is one of the reasons that he is optimistic about his nation’s prospects for economic growth, commenting that in America the Democrats and Republicans are polarised on many major issues. Earlier last week, Ma also said that foreign companies seeking to do business in China must “follow the rules”, which was interpreted as meaning western tech giants must comply with local censorship laws

Keep reading |  1 min read

China

Chinese Yuan Bear Market: Is It Coming?

 3 min read / 

Chinese Yuan

As pessimism towards the Chinese economy reached bearish extremes last year, shorting the Chinese yuan became a favourite trade for many notable hedge funds.

The most famous bear, Kyle Bass, famously predicted that the yuan was set to fall by at least 30% as China’s credit problems kept ‘metastasizing’. His fund, Hayman Capital Management, raised a dedicated vehicle in order to take advantage of a slowdown in China.

Given that Chinese stock markets remain fairly underdeveloped, buying or selling Chinese equities is a poor way to express a view towards the country’s economy. Instead, hedge funds zeroed in on the currency as capital flight began accelerating in 2014. Yet, few noticed that the country had launched a new cycle of credit growth in early 2016.

Given China’s reliance on debt funding and investments to drive economic growth, looking at aggregate new financing is one of the best leading indicators for economic conditions.

Another good way of measuring onshore sentiment is to look at national house prices in rate-of-change terms. Given the huge gains in real estate over the past decade, local Chinese investors are watching house prices carefully. This is illustrated by the graph below:

Source: CEIC data

This marked the bottom for many assets with a high sensitivity to Chinese demand such as industrial metals and commodity currencies.

As house prices took off across China in 2016, Chinese residents regained confidence in the economy, and capital flight fell as a result. As of Q1 2017, Chinese house price growth has peaked and is now on a decelerating trend. Given the sharp rise of credit growth in 2016 and 2017, new credit growth is also likely to slow in 2018.

Another Bear Market on the Horizon

While the bull market that began in early 2016 has been great for assets that benefit from accelerating Chinese growth, the future outlook looks considerably cloudier. Our favourite indicator of the health of China’s economy is the Australian dollar.

Since the conclusion of China’s 19th Party Congress in October, the Australian dollar has been selling off sharply. Trending indicators for both the short-term and medium-term time frames on the Australian dollar have been bearish since that time.

This week, the currency has experienced another significant bout of weakness following poor GDP growth data. Earlier today, the currency sold off after export volumes missed expectations due to a sharp fall in iron ore exports (primarily destined for China). As the Australian dollar has historically served as a reliable front-runner to the Chinese yuan, the growing divergence between the two currencies is important to watch. This is shown below:

Source: TradingView.com, MarketsNow. (Note: CNH/USD inversed in blue).

As can be seen from a recent history of AUD/USD versus CNH/USD (inversed), the Australian dollar tends to foreshadow the future of the Chinese yuan.

While AUD weakened materially in late 2014 and 2015, the Chinese yuan did not follow suit until mid-2015. Similarly, once the Australian dollar began strengthening in 2016, the yuan eventually followed in 2017.

Conclusion

Lately, the Australian dollar has been far weaker relative to the Chinese yuan. Given slowing credit growth and decelerating new house prices, there are reasons to be concerned about the outlook for China’s economy. As the Australian dollar is now also falling, all signs suggest a weaker Chinese yuan in the near future.

Keep reading |  3 min read

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