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

by Kai-Fu Lee

That wealth of information on users—their location every second of the day, how they commute, what foods they like, when and where they buy groceries and beer—will prove invaluable in the era of AI implementation. It gives these companies a detailed treasure trove of these users’ daily habits, one that can be combined with deep-learning algorithms to offer tailor-made services ranging from financial auditing to city planning.

Rote memorization formed the core of Chinese education for millennia. Entry into the country’s imperial bureaucracy depended on word-for-word memorization of ancient texts and the ability to construct a perfect “eight-legged essay” following rigid stylistic guidelines. While Socrates encouraged his students to seek truth by questioning everything, ancient 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.

In a market where copying was the norm, these entrepreneurs were forced to work harder and execute better than their opponents. 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.

Thriving in this environment required both engineering prowess and raw manpower: armies of scooter-riding deliverymen schlepping hot meals around town, tens of thousands of sales reps fanning out to push mobile payments on street vendors, and millions of shared bikes loaded onto trucks and dispersed around cities. An explosion of these services pushed Chinese companies to roll up their sleeves and do the grunt work

But instead of Facebook’s minimalist platform for posting content, the official accounts offered much of the functionality of a standalone app without the hassle of actually building one. These accounts quickly became so dominant in the social media space that many media and consumer companies simply stopped building their own apps, choosing instead to live entirely in WeChat’s world.

the last crucial puzzle piece of a consumption revolution: the ability to pay for anything and everything with your phone.

China’s online and offline world would begin rubbing shoulders in a way not seen anywhere else in the world. They were refashioning China’s urban landscape and the world’s richest real-world datascape.

It was a social and commercial transformation that was powered by—and which further empowered—WeChat. Installed on more than half of all smartphones in China and now linked to many users’ bank accounts, WeChat had the power to nudge hundreds of millions of Chinese into O2O purchases and to pick winners among the competing startups.

That willingness to go heavy—to spend the money, manage the workforce, do the legwork, and build economies of scale—has reshaped the relationship between the digital and real-world economies.

but the mom-and-pop shops and family restaurants that dominate the cityscape rarely had point-of-sale (POS) devices for processing plastic cards. The owners of those shops did, however, have smartphones. So China’s internet juggernauts turned those phones into mobile portals for payments. The idea was simple, but the speed of execution, impact on consumer behavior, and resulting data have been astonishing. During 2015 and 2016, Tencent and Alipay gradually introduced the ability to pay at shops by simply scanning a QR code—basically a square bar code for phones—within the app. It’s a scan-or-get-scanned world. Larger businesses bought simple POS devices that can scan the QR code displayed on customers’ phones and charge them for the purchase. Owners of small shops could just print out a picture of a QR code that was linked to their WeChat Wallet. Customers then use the Alipay or WeChat apps to scan the code and enter the payment total, using a thumbprint for confirmation. Funds are instantly transferred from one bank account to the other—no fees and no need to fumble with wallets. It marked a stark departure from the credit-card model in the developed world.

By the end of 2017, 65 percent of China’s over 753 million smartphone users had enabled mobile payments.

For 2017, total transactions on China’s mobile payment platforms reportedly surpassed $17 trillion—greater than China’s GDP—an astounding number made possible by the fact that these payments allow for peer-to-peer transfers and multiple mobile transactions for items and services throughout the chain of production.

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.

Data from mobile payments is currently generating the richest maps of consumer activity the world has ever known, far exceeding the data from traditional credit-card purchases or online activity captured by e-commerce players like Amazon or platforms like Google and Yelp.

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.

The plan has also shifted incentives for policy innovation around AI. Ambitious mayors across China are scrambling to turn their cities into showcases for new AI applications. They’re plotting driverless trucking routes, installing facial recognition systems on public transportation, and hooking traffic grids into “city brains” that optimize flows.