AI Superpowers: China, Silicon Valley, and the New World Order

by Kai-Fu Lee

Deep learning’s relationship with data fosters a virtuous circle for strengthening the best products and companies: more data leads to better products, which in turn attract more users, who generate more data that further improves the product.

Instead of a dispersion of industry profits across different companies and regions, we will begin to see greater and greater concentration of these astronomical sums in the hands of a few, all while unemployment lines grow longer.

United Kingdom, France, and Canada, to name a few—have strong AI research labs staffed with great talent, but they lack the venture-capital ecosystem and large user bases to generate the data that will be key to the age of implementation. As AI companies in the United States and China accumulate more data and talent, the virtuous cycle of data-driven improvements is widening their lead to a point where it will become insurmountable. China and the United States are currently incubating the AI giants that will dominate global markets and extract wealth from consumers around the globe.

AI-driven automation in factories will undercut the one economic advantage developing countries historically possessed: cheap labor.

The AI world order will combine winner-take-all economics with an unprecedented concentration of wealth in the hands of a few companies in China and the United States. This, I believe, is the real underlying threat posed by artificial intelligence: tremendous social disorder and political collapse stemming from widespread unemployment and gaping inequality.

Wang Xing (pronounced “Wang Shing”) made his mark on the early Chinese internet as a serial copycat, a bizarre mirror image of the revered serial entrepreneurs of Silicon Valley. In 2003, 2005, 2007, and again in 2010, Wang took America’s hottest startup of the year and copied it for Chinese users.

Facebook was storming college campuses with its clean design and niche targeting of students. Wang adopted both when he created Xiaonei (“On Campus”). The network was exclusive to Chinese college students, and the user interface was an exact copy of Mark Zuckerberg’s site.

In 2007, Wang was back at it again, making a precise copy of the newly founded Twitter.

Then, three years later Wang took the business model of red-hot Groupon and turned it into the Chinese group-buying site Meituan.

Chinese startups taking inspiration from an American business model and then fiercely competing against each other to adapt and optimize that model specifically for Chinese users—that turned Wang Xing into a world-class entrepreneur.

China’s internet ecosystem had become: a coliseum where hundreds of copycat gladiators fought to the death. Amid the chaos and bloodshed, the foreign first-movers often proved irrelevant. It was the domestic combatants who pushed each other to be faster, nimbler, leaner, and meaner. They aggressively copied each other’s product innovations, cut prices to the bone, launched smear campaigns, forcibly deinstalled competing software, and even reported rival CEOs to the police. For these gladiators, no dirty trick or underhanded maneuver was out of bounds.

it was precisely this widespread cloning—the onslaught of thousands of mimicking competitors—that forced companies to innovate.

this cutthroat entrepreneurial environment will be one of China’s core assets in building a machine-learning-driven economy.

The dramatic transformation that deep learning promises to bring to the global economy won’t be delivered by isolated researchers producing novel academic results in the elite computer science labs of MIT or Stanford. Instead, it will be delivered by down-to-earth, profit-hungry entrepreneurs teaming up with AI experts to bring the transformative power of deep learning to bear on real-world industries.

China’s gladiator entrepreneurs will fan out across hundreds of industries, applying deep learning to any problem tha...

Central to that ideology is a wide-eyed techno-optimism, a belief that every person and company can truly change the world through innovative thinking. Copying ideas or product features is frowned upon as a betrayal of the zeitgeist and an act that is beneath the moral code of a true entrepreneur.

Startups that grow up in this kind of environment tend to be mission-driven. They start with a novel idea or idealistic goal, and they build a company around that.

In stark contrast, China’s startup culture is the yin to Silicon Valley’s yang: instead of being mission-driven, Chinese companies are first and foremost market-driven. Their ultimate goal is to make money, and they’re willing to create any product, adopt any model, or go into any business that will accomplish that objective. That mentality leads to incredible flexibility in business models and execution,

It doesn’t matter where an idea came from or who came up with it. All that matters is whether you can execute it to make a financial profit. The core motivation for China’s market-driven entrepreneurs is not fame, glory, or changing the world. Those things are all nice side benefits, but the grand prize is getting rich, and it doesn’t matter how you get there.

Chinese philosophers counseled people to follow the rituals of sages from the ancient past. Rigorous copying of perfection was seen as the route to true mastery.

Combine these three currents—a cultural acceptance of copying, a scarcity mentality, and the willingness to dive into any promising new industry—and you have the psychological foundations of China’s internet ecosystem.

The most valuable product to come out of China’s copycat era wasn’t a product at all: it was the entrepreneurs themselves.

The prevailing American attitude was that people like Wang Xing could copy the look and feel of Facebook, but that the Chinese would never access the mysterious magic of innovation that drove a place like Silicon Valley.

Baidu’s core functions and minimalist design mimicked Google, but Li relentlessly optimized the site for the search habits of Chinese users.

Eye-tracking maps revealed a deeper truth about the way both sets of users approached search. Americans treated search engines like the Yellow Pages, a tool for simply finding a specific piece of information. Chinese users treated search engines like a shopping mall, a place to check out a variety of goods, try each one on, and eventually pick a few things to buy.

eBay, Google, Uber, Airbnb, LinkedIn, Amazon—tried and failed to win the Chinese market, Western analysts were quick to chalk up their failures to Chinese government controls. They assumed that the only reason Chinese companies survived was due to government protectionism that hobbled their American opponents.

They see the primary job in China as marketing their existing products to Chinese users. In reality, they need to put in real work tailoring their products for Chinese users or building new products from the ground up to meet market demands.

Foreign firms are often left with mild-mannered managers or career salespeople helicoptered in from other countries, people who are more concerned with protecting their salary and stock options than with truly fighting to win the Chinese market. Put those relatively cautious managers up against gladiatorial entrepreneurs who cut their teeth in China’s competitive coliseum, and it’s always the gladiators who will emerge victorious.

Weibo, a micro-blogging platform initially inspired by Twitter, was far faster to expand multimedia functionality and is now worth more than the American company. Didi, the ride-hailing company that duked it out with Uber, dramatically expanded its product offerings and gives more rides each day in China than Uber does across the entire world. Toutiao, a Chinese news platform often likened to BuzzFeed, uses advanced machine-learning algorithms to tailor its content for each user, boosting its valuation many multiples above the American website.

Dismissing these companies as copycats relying on government protection in order to succeed blinds analysts to world-class innovation that is happening elsewhere.

In Silicon Valley, his tactics would guarantee social ostracism, antimonopoly investigations, and endless, costly lawsuits. But in the Chinese coliseum, none of these three can hold back combatants.

The lessons learned in the coliseum were clear: kill or be killed. Any company that can’t fully insulate itself from competitors—on a technical, business, or even personnel level—is a target for attack.

It’s a cultural system that also inspires a truly maniacal work ethic. Silicon Valley prides itself on long work hours, an arrangement made more tolerable by free meals, on-site gyms, and beer on tap. But compared with China’s startup scene, the valley’s companies look lethargic and its engineers lazy.

What does a founder do when there’s a divergence between what the market demands and what a mission dictates? China’s market-driven entrepreneurs faced no such dilemma. Unencumbered by lofty mission statements or “core values,” they had no problem following trends in user activity wherever it took their companies.

Silicon Valley prides itself on its aversion to copying, but this often leads to complacency. The first mover is simply ceded a new market because others don’t want to be seen as unoriginal. Chinese entrepreneurs have no such luxury. If they succeed in building a product that people want, they don’t get to declare victory. They have to declare war.

the War of a Thousand Groupons. He founded Meituan

With overeager investors funding thousands of near-identical companies, Chinese urbanites took advantage of the absurd discounts to eat out in droves. It was as if China’s venture-capital community were treating the entire country to dinner.

By 2014, Groupon was trading at less than half of its IPO price. Today it’s a shell of what it had been. By contrast, Wang ceaselessly expanded Meituan’s lines of business and constantly reshaped its core products.

Most customers had long forgotten that Meituan began as a group-buying site. They knew it for what it had become: a sprawling consumer empire covering noodles, movie tickets, and hotel bookings. Today, Meituan Dianping is valued at $30 billion, making it the fourth most valuable startup in the world, ahead of Airbnb and Elon Musk’s SpaceX.

these changes will pale in comparison to what these entrepreneurs will do with the power of artificial intelligence.

If artificial intelligence is the new electricity, big data is the oil that powers the generators. And as China’s vibrant and unique internet ecosystem took off after 2012, it turned into the world’s top producer of this petroleum for the age of artificial intelligence.

Guo Hong

The year was 2010, and Guo was responsible for the influential Zhongguancun (“jong-gwan-soon”) technology zone in northwest Beijing, an area that had long branded itself as China’s answer to Silicon Valley but had not really lived up to the title.

After spending a decade representing the most powerful American technology companies in China, in the fall of 2009 I left Google China to establish Sinovation, an early-stage incubator and angel investment fund for Chinese startups.

The copycat era had forged world-class entrepreneurs, and they were just beginning to apply their skills to solving uniquely Chinese problems.

We were recruiting promising engineers to join our incubator and launch startups targeting China’s first wave of smartphone users. Guo wanted to know what he could do to support that mission. I told him that the cost of rent was eating a big chunk of the money we wanted to pour into fostering these startups. Any relief on rent would mean more money for building products and companies. No problem, he said—he would make some calls. The local government could likely cover our rent for three years if we relocated to the neighborhood of Zhongguancun.

I explained how many of the area’s early entrepreneurs went on to become angel investors and mentors, how geographic proximity and tightly woven social networks gave birth to a self-sustaining venture-capital ecosystem that made smart bets on big ideas.

Silicon Valley’s ecosystem had taken shape organically over several decades. But what if we in China could speed up that process by brute-forcing the geographic proximity? We could pick one street in Zhongguancun, clear out all the old inhabitants, and open the space to key players in this kind of ecosystem: VC firms, startups, incubators, and service providers. He already had a name in mind: Chuangye Dajie—Avenue of the Entrepreneurs.

That ecosystem was becoming both independent and self-sustaining. Chinese founders no longer had to tailor their startup pitches to the tastes of foreign VCs. They could now build Chinese products to solve Chinese problems.

During the copycat era, the relationship between China and Silicon Valley was one of imitation, competition, and catch-up. But around 2013, the Chinese internet changed direction. It no longer lagged behind the Western internet in functionality,