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

by Kai-Fu Lee

We want to know what AI automation will mean for our jobs and for our sense of purpose. We want to know which people and countries will benefit from this tremendous technology. We wonder whether AI can vault us to lives of material abundance, and whether there is space for humanity in a world run by intelligent machines.

Beijing’s Zhongguancun (pronounced “jong-gwan-soon”) neighborhood, an area often referred to as “the Silicon Valley of China.” Today, Zhongguancun is the beating heart of China’s AI movement.

AlphaGo scored its first high-profile victory in March 2016 during a five-game series against the legendary Korean player Lee Sedol, winning four to one. While barely noticed by most Americans, the five games drew more than 280 million Chinese viewers. Overnight, China plunged into an artificial intelligence fever. The buzz didn’t quite rival America’s reaction to Sputnik, but it lit a fire under the Chinese technology community that has been burning ever since.

By 2017, Chinese venture-capital investors had already responded to that call, pouring record sums into artificial intelligence startups and making up 48 percent of all AI venture funding globally, surpassing the United States for the first time.

the skillful application of AI will be China’s greatest opportunity to catch up with—and possibly surpass—the United States.

Unlike the rule-based approach, builders of neural networks generally do not give the networks rules to follow in making decisions. They simply feed lots and lots of examples of a given phenomenon—pictures, chess games, sounds—into the neural networks and let the networks themselves identify patterns within the data. In other words, the less human interference, the better.

Fundamentally, these algorithms use massive amounts of data from a specific domain to make a decision that optimizes for a desired outcome. It does this by training itself to recognize deeply buried patterns and correlations connecting the many data points to the desired outcome.

Doing this requires massive amounts of relevant data, a strong algorithm, a narrow domain, and a concrete goal. If you’re short any one of these, things fall apart.

Deep learning is what’s known as “narrow AI”—intelligence that takes data from one specific domain and applies it to optimizing one specific outcome. While impressive, it is still a far cry from “general AI,” the all-purpose technology that can do everything a human can.

People are so excited about deep learning precisely because its core power—its ability to recognize a pattern, optimize for a specific outcome, make a decision—can be applied to so many different kinds of everyday problems.

The West may have sparked the fire of deep learning, but China will be the biggest beneficiary of the heat the AI fire is generating. That global shift is the product of two transitions: from the age of discovery to the age of implementation, and from the age of expertise to the age of data.

Many of these new milestones are, rather, merely the application of the past decade’s breakthroughs—primarily deep learning but also complementary technologies like reinforcement learning and transfer learning—to new problems.

the ability to tweak complex mathematical algorithms, to manipulate massive amounts of data, to adapt neural networks to different problems. That often takes Ph.D.-level expertise in these fields.

Much of the difficult but abstract work of AI research has been done, and it’s now time for entrepreneurs to roll up their sleeves and get down to the dirty work of turning algorithms into sustainable businesses.

successful AI algorithms need three things: big data, computing power, and the work of strong—but not necessarily elite—AI algorithm engineers.

in this age of implementation, data is the core. That’s because once computing power and engineering talent reach a certain threshold, the quantity of data becomes decisive in determining the overall power and accuracy of an algorithm.

Harnessing the power of AI today—the “electricity” of the twenty-first century—requires four analogous inputs: abundant data, hungry entrepreneurs, AI scientists, and an AI-friendly policy environment.

China’s successful internet entrepreneurs have risen to where they are by conquering the most cutthroat competitive environment on the planet. They live in a world where speed is essential, copying is an accepted practice, and competitors will stop at nothing to win a new market. Every day spent in China’s startup scene is a trial by fire, like a day spent as a gladiator in the Coliseum. The battles are life or death, and your opponents have no scruples. The only way to survive this battle is to constantly improve one’s product but also to innovate on your business model and build a “moat” around your company. If one’s only edge is a single novel idea, that idea will invariably be copied, your key employees will be poached, and you’ll be driven out of business by VC-subsidized competitors.

online-to-offline (O2O) startups that brought the convenience of e-commerce to bear on real-world services like restaurant food or manicures.

China’s alternate digital universe now creates and captures oceans of new data about the real world.

a detailed treasure trove of these users’ daily habits, one that can be combined with deep-learning algorithms to offer tailor-made services

PricewaterhouseCoopers estimates AI deployment will add $15.7 trillion to global GDP by 2030. China is predicted to take home $7 trillion of that total, nearly double North America’s $3.7 trillion in gains. As the economic balance of power tilts in China’s favor, so too will political influence and “soft power,” the country’s cultural and ideological footprint around the globe.

American companies, citizens, and politicians have forgotten what it feels like to be on the receiving end of these exchanges, a process that often feels akin to “technological colonization.”

Based on the current trends in technology advancement and adoption, I predict that within fifteen years, artificial intelligence will technically be able to replace around 40 to 50 percent of jobs in the United States.

going forward, digital goods and services will continue eating up larger shares of the consumer pie, and autonomous trucks and drones will dramatically slash the cost of shipping physical goods. 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.

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.

The battle royal for China’s group-buying market was a microcosm of what China’s internet ecosystem had become: a coliseum where hundreds of copycat gladiators fought to the death.

For these gladiators, no dirty trick or underhanded maneuver was out of bounds. They deployed tactics that would make Uber founder Travis Kalanick blush.

Pure copycats never made for great companies, and they couldn’t survive inside this coliseum. But the trial-by-fire competitive landscape created when one is surrounded by ruthless copycats had the result of forging a generation of the most tenacious entrepreneurs on earth.

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.

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.

That first act of copying didn’t turn into an anti-innovation mentality that its creator could never shake. It was a necessary steppingstone on the way to more original and locally tailored technology products.

when Chinese copycats went head-to-head with their Silicon Valley forefathers, they took that American unwillingness to adapt and weaponized it. Every divergence between Chinese user preferences and a global product became an opening that local competitors could attack.

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. For tens of millions of Chinese new to the internet, this was their first exposure to such a variety of information, and they wanted to sample it all.

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. To the winner go the spoils, and those spoils can amount to billions of dollars.

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.

Underneath this transformation lay several key building blocks: mobile-first internet users, WeChat’s role as the national super-app, and mobile payments that transformed every smartphone into a digital wallet.

Surrounded by competitors ready to reverse-engineer their digital products, they must use their scale, spending, and efficiency at the grunt work as a differentiating factor. They burn cash like crazy and rely on armies of low-wage delivery workers to make their business models work. It’s a defining trait of China’s alternate internet universe that leaves American analysts entrenched in Silicon Valley orthodoxy scratching their heads.

once technical talent reaches a certain threshold, it begins to show diminishing returns. Beyond that point, data makes all the difference. Algorithms tuned by an average engineer can outperform those built by the world’s leading experts if the average engineer has access to far more data.

when cheap smartphones hit the market, waves of ordinary citizens leapfrogged over personal computers entirely and went online for the first time via their phones.

For mobile-first users, the internet wasn’t just an abstract collection of digital information that you accessed from a set location. Rather, the internet was a tool that you brought with you as you moved around cities—it should help solve the local problems you run into when you need to eat, shop, travel, or just get across town. Chinese startups needed to build their products accordingly.

Over the ensuing five years, Tencent painstakingly built WeChat into the world’s first super-app. It became a “remote control for life” that dominated not just users’ digital worlds but allowed them to pay at restaurants, hail taxis, unlock shared bikes, manage investments, book doctors’ appointments, and have those doctors’ prescriptions delivered to your door.

When Tencent’s flood of red envelopes lured millions of Chinese into linking their bank accounts to WeChat, it put in place the last crucial puzzle piece of a consumption revolution: the ability to pay for anything and everything with your phone.

“online-to-offline.” The terminology can be confusing but the concept is simple: turn online actions into offline services.

Lazy pet owners could use an app to hail someone who would come right over and clean out a cat’s litter box or wash their dog. Chinese parents could hire van drivers to pick up their children from school, confirming their ID and arrival home through apps.

With the rise of O2O, WeChat had grown into the title bestowed on it by Connie Chan of leading VC fund Andreesen Horowitz: a remote control for our lives. It had become a super-app, a hub for diverse functions that are spread across dozens of different apps in other ecosystems. In effect, WeChat has taken on the functionality of Facebook, iMessage, Uber, Expedia, eVite, Instagram, Skype, PayPal, Grubhub, Amazon, LimeBike, WebMD, and many more. It isn’t a perfect substitute for any one of those apps, but it can perform most of the core functions of each, with frictionless mobile payments already built in.

Going heavy means building walls around your business, insulating yourself from the economic bloodshed of China’s gladiator wars. These companies win both by outsmarting their opponents and by outworking, outhustling, and outspending them on the street.

Mobile payments are an improvement on cards but not as dramatic an improvement as the jump straight from cash. As with China’s rapid transition to the mobile internet, the country’s weakness in incumbent technology (desktop computers, landline phones, and credit cards) turned into the strength that let it leapfrog into a new paradigm.

The IoT refers to collections of real-world, internet-connected devices that can convey data from the world around them to other devices in the network.

Building this alternate universe didn’t happen overnight. It required market-driven entrepreneurs, mobile-first users, innovative super-apps, dense cities, cheap labor, mobile payments, and a government-sponsored culture shift.