Inside China’s AI ambitions

Hi everyone, James here . . . We at Tech Scroll Asia will be sinking into the sofa, blowing the froth off our eggnog (oh yes, despite our zeitgeist-hugging outward personas, our taste in Christmas tipples remains strictly Dickensian) and dozing off in front of seasonal TV for a while.

First we’d like to thank everyone who attended our event in Tokyo last week to launch the Japanese edition of the newsletter. Many thanks, too, to our excellent panellists Geoffrey Prentice of Oriente and Jason Tan of Jeneration Capital.

We will be back with our next edition on January 8. In the meantime, we’d like to express our heartfelt appreciation to all our readers for making this newsletter so widely followed in the eight months since we launched. We aim to stimulate, inform and surprise again next year. Please do send us your feedback and suggestions for coverage to James.Kynge@FT.com or Mercedes.Ruehl@FT.com

The big things to read this week, we think, are China’s AI ambitions and the continuing aftershocks of the WeWork debacle that are undermining many unicorn valuations across the region.

Till we meet again, a very happy Christmas and New Year to all. 

The Big Story

Artificial intelligence in China is the ultimate boundary-blurring technology. The lines that separate state-directed and private sector initiatives as well as those between civilian and security uses are so porous they are hard to define. This article in the Nikkei Asian Review describes the rollout of Beijing’s huge AI ambitions and the ethical issues over data privacy that they raise.

A small city near China’s border with Vietnam encapsulates Beijing’s approach. The city’s authorities are trying to create a “smart city”. Typically, this involves handing over a huge amount of citizens’ data to China’s big tech companies.

Key implications: “Private AI companies in China leverage strategic support from the government to form a collaborative national organism of AI,” said Vilas Dhar, a US-based venture investor and AI expert. “This integrated ecosystem makes them highly competitive, but also spurs scrutiny by the rest of the world.”

The size of China’s AI ambitions are startling. The State Council (cabinet) decreed in 2017 that the AI industry would be worth Rmb1tn ($143bn) by 2030. Much of this is intended to be achieved by a “national team” comprised partly of private companies including Baidu, Alibaba and Tencent, together with voice recognition intelligence company iFlytek.

Upshot: China’s push into AI should not be underestimated. Between 2016 and 2018, Chinese companies filed more AI-related patents than their US counterparts. In 2018 alone, the country was responsible for 30,000 new patent filings in artificial intelligence: a 10-fold increase in just five years, according to research by Nikkei. 

Mercedes’ top 10

A round-up of the week’s best tech stories from the FT’s Asia tech reporter Mercedes Ruehl.

1. I hit the road in Indonesia recently to trace the rise of the “super app” — see me doing a piece to camera while balancing on the back of a Gojek food delivery motorbike here and please take a look at our fintech in Asia Big Read here.

2. Oyo, the Indian hotel chain backed by Japan’s SoftBank, is having trouble in China, where it claims to have 19,000 contracts. This FT report indicates that many of those hoteliers are extremely disgruntled. 

3. On that note, the FT’s Elaine Moore in Silicon Valley reflects on the annus horribilis for tech start-ups and the factors that have created huge — and unprofitable — companies. Despite that, private investment in tech is not slowing down.

4. Grab, the south-east Asian ride-hailing unicorn, has struck a deal with Indonesia’s government to launch an electric vehicle pilot programme in 2020. The pilot will run in Jakarta and Grab is collaborating with automakers and distributors, including Hyundai.

5. Cheap in Japan. The world’s third-biggest economy was once a “dream destination” for tech workers from developing countries. But now even countries such as Thailand are catching up in terms of median wage. 

6. Mascara with a dash of artificial intelligence. Here’s the Nikkei Asian Review on how Japanese cosmetics companies are partnering with tech groups since L’Oréal blazed a trail. 

7. The FT’s Yuan Yang and Patrick Mathurin explain the significance of the latest salvo in the tech spat between the US and China: the “3-5-2” directive from Beijing. This is yet more evidence that even with a trade deal, the tech war is far from over. 

8. Meanwhile, a battle that has been raging for much longer between the two economies may be nearing conclusion. Beijing and Washington are aiming to allow the US regulator to review the books of Chinese companies listed in America. This is an important development. 

9. Is Uber close to shutting down its food delivery business in India? Speculation is mounting that Zomato, one of the country’s biggest food delivery companies, will buy the local arm of Uber Eats.

10. Here is a superb column from John Thornhill on how parents once scoffed at playing computer games for a job. No longer — the games market is worth $120bn a year. “The bigger question for society is whether on a net basis more jobs will be created by technology than destroyed,” he says. 

When sages speak

• In case you have the impression that everyone in China supports the widespread use of facial recognition technology, this translation by Jeffrey Ding of the ChinAI newsletter will set you right. Tsinghua University professor Lao Dongyuan makes a strong argument. In one section she says that “in our society, any personal data, as long as it is controlled by enterprises or other institutions, is also controlled by the government”.

• Here are some interesting perspectives from Gautam Chikermane, vice-president of think-tank Observer Research Foundation, on how India is not yet ready for 5G telecoms. He also notes that 5G will control airports, traffic lights and many other critical infrastructure functions. Therefore, he says, such technology cannot be left to Huawei, a company “beholden to a nation that is openly against India”.

Heard by Henny

What a difference a year makes. Sobriety returned to Asian tech valuations in the latter part of 2019, blowing much of the froth off the heady exuberance that had characterised investor sentiment, particularly in China.

Cast your mind back to this time last year. SoftBank’s Vision Fund, which was set up in 2017 and was holding $100bn in assets, was flooding early-stage companies with cash. Sequoia had launched an $8bn global growth fund. Hillhouse Capital raised more than $10bn for a fund that broke KKR’s record for an Asia-focused private equity strategy.

But now, after the WeWork debacle and concerns surrounding some of Asia’s brightest unicorns (see last week’s newsletter on Paytm), the downdraught is palpable. Jeneration Capital, for instance, has managed to secure discounts of about 20 to 30 per cent on the valuations that its target companies had originally demanded.

Read the article here by Henny Sender, the FT’s chief correspondent, international finance.

Art of the deal

Gojek, the Indonesian ride-hailing decacorn, has confirmed it will be shutting down all but two services from its separate lifestyle division and app, GoLife. The decision was taken following a review of the sluggish performance of the five services that combined have contributed only 10 per cent of total orders on the platform.

Only GoClean and GoMassage, the house cleaning and home massage services, will be retained in the lifestyle division. These two had accounted for 90 per cent of the orders on the GoLife app, which will continue to operate. 

That means the beautician service (GoGlam), the vehicle maintenance service (GoAuto), the home appliances repair service (GoFix), the daily needs delivery service (GoDaily) and a service marketplace feature are all biting the dust. 

Elsewhere

Canada-based fusion energy start-up General Fusion has raised $65m in a Series E financing round led by Singapore’s Temasek. General Fusion also secured an additional C$50m (US$38m) from Canada’s Strategic Innovation Fund, it said. The new financing will enable it to formally launch a programme to design, construct and operate a fusion demonstration plant.

In the spotlight

The Nasdaq gained another Chinese tech start-up this past week. But the initial public offering by EHang, the autonomous flying taxi start-up, was not about raising money, according to Hu Huazhi, its chairman and founder. 

The primary goal was to “increase the company’s transparency” and boost its international reputation, Mr Hu said. He shrugged off the political risks for US-listed Chinese technology companies amid heightened tensions between the two economies. “Most disputes between [the] two countries were related to information products that might affect people's privacy,” he said. “As a vehicle provider, we are not subject to such concerns.”

That said, other Chinese aerial tech companies have raised security concerns in the US. Perhaps that is why EHang shares are down more than 11 per cent nearly a week after going public.

Smart data

It’s hard to name a food delivery app that isn’t lossmaking. Uber Eats, DoorDash, Swiggy and Deliveroo may have helped turn delivering meals into a multibillion-dollar industry and cut into restaurants’ profits but making a profit is still an aspiration for many of these companies. Meituan Dianping, China’s top food delivery app, is an exception. 

Just 12 months ago, Meituan losses were growing faster than its sales. It has now reversed that, prompting a 145 per cent rise in its share price and its market value, now $75bn, makes it China’s third-biggest public tech company. The FT’s Ryan McMorrow in Beijing has more on the sustainability of this turnround, which involved charging more for ads and taking larger commissions. 

Regulation round-up

• More rules to rein in Big Tech in Asia. Japan is considering legislation that would require tech companies to reveal contract terms with online vendors and app developers, creating a fairer playing field. The move would, in theory, stop practices such as forcing suppliers to buy a platform’s or company’s own services.

• Fresh from a crackdown on Amazon and Walmart, Indian authorities are now putting the heat on Chinese shopping apps.