Members of our team recently returned from our latest research trip, which included multiple cities in mainland China. We met with company management teams, toured facilities and simply observed. Boots-on-the-ground experiences give us insights into emerging secular trends and investment opportunities, and this trip was no exception.
One of the key takeaways from this trip was the significant progress China is making in its development and use of artificial intelligence (AI) technology. Our experiences traveling through the country as well as our conversations with industry experts underscored China’s commitment to being the leader in artificial intelligence. Moreover, as we’ll discuss in this post, China may enjoy some competitive advantages in developing AI.
Economic Impact of China’s AI Ambitions
Source: Bloomberg using data from the State Council of the Peoples Republic of China.
One of the most visible examples of China’s commitment to AI is the country’s widespread use of cameras and monitoring equipment. We’ve noticed this technology before but during this trip, the increased presence of monitoring devices was striking—not only in Tier 1 cities, but also in Tier 2 and Tier 3 cities. We saw cameras on almost every light post and observed the extensive use of cameras by private entities. For example, every property management company we visited eagerly showed us control rooms displaying the output of hundreds of cameras installed on their properties. US property companies use similar technology (though with fewer feeds) but in China, these feeds often don’t stop with the onsite control room as in the US. Instead, the data also goes to corporate headquarters where teams monitor activities and provide real-time feedback on issues and concerns.
Additionally, many Chinese companies provide their feeds to the government, which is compiling a massive database of video, audio, and other types of data. The government in turn, shares its data with a select list of approved private and public entities to help them “train” and improve AI technologies. Through these practices, China is moving closer to the AI Holy Grail of eliminating the need for human intervention. The country’s AI capabilities are already apparent: We had the opportunity to observe facial recognition software that identified more than 100 individuals on real-time video feed.
China’s AI approach is important because our team believes data will be a strategic resource in the next stage of industrialization, of similar importance as oil in the initial stages of industrialization. As commerce and industry become increasingly digitized, AI will be more valuable. Companies will need to access, analyze, and manipulate vast quantities of data to compete effectively. A handful of U.S. mega-companies have collected vast data troves during their normal course of business—think internet retail, search engine and social media juggernauts. However, US privacy laws and regulations are intended to protect consumers and intellectual property. New entrants face competitive hurdles because they are unable to access the data the behemoths hold.
Through this lens, our observations in China have far-reaching implications. China has a significant competitive advantage in the next stage of industrialization. The lack of regulation and privacy laws permit the capture and storage of vast amounts of data, both from the public and private sector. While in the US, we are often concerned with the collection and sharing of personal data, many people we spoke to on our trip expressed a different view. For example, some extolled the virtues of facial recognition software to locate a missing child or identify a criminal in matter of hours.
Our team has identified a number of ways to participate in the growth of the data revolution. We’ve invested in the camera companies that refine algorithms used for the high-speed analysis that is commonplace in China. The base of cameras already installed in China is very high, and we believe an upgrade cycle is imminent. Camera lens-quality is improving rapidly and newer HD/5G technology allows for faster data speed and analysis. Additionally, global chip companies supplying the arms in this race provide another way to access this theme. We’re also finding opportunities in Chinese corporations at the forefront of leveraging AI, including online conglomerates and search engines that received access to data the government holds. These Chinese companies will likely come up with unprecedented ways to use this data.
AI’s role in future technology is impossible to predict with certainty, but it is clear it will be at the forefront of technology’s next generation of products and services. Our team is identifying ways to participate in this exciting growth trend every day.