China and the Bay Area face off over AI

By Richard Procter – Special projects editor, San Francisco Business Times
Mar 21, 2019, 11:30am PDT

Original post can be found at the San Francisco Business Times.

From robot cars to virtual assistants to algorithms for streaming video, advances in artificial intelligence are driving innovation and money. A lot of money.

With the AI market expected to add $15.7 trillion to the global economy by 2030 — an increase of 685 percent, and more than the 2018 GDP of Japan, India, Germany and France combined — competition to lead the way is fierce. The number of AI jobs in the U.S. per million people has nearly tripled just since 2016, according to job website Indeed.

Like many emerging technologies, AI has rapidly bedded down in the Bay Area. Google, Facebook, Amazon and Microsoft are regarded as the biggest AI powerhouses in the United States. The first two of those call this region home and the other two have a sizable presence here. Microsoft employs over 2,000 people in the Bay Area and is building a Mountain View campus that should be completed in December 2019. IBM, which holds by far the most AI patents, has a sizable San Francisco office. Other Silicon Valley tech giants like NVIDIA, Adobe and Twitter have also been among the companies hiring the most AI workers in the U.S.

But Bay Area dominance is far from guaranteed. At the same time that interest and investment in AI is exploding here, it is doing the same in China. The Chinese are equally determined to establish a commanding lead in this nascent field, and they have some advantages over the Bay Area in doing so.
“Right now, in terms of (making) money, China is better,” said venture capitalist Denis Barrier. “Companies in that market can scale faster and the cost (of talent) is lower.” His company, Cathay Innovation, which has offices in San Francisco, Beijing, Shanghai, New York and Paris, invested in Momenta, one of China’s leading autonomous driving AI companies.

More than bragging rights are at stake in who dominates AI’s future. It is expected to become an essential input of technology — as crucial as electricity. This view has contributed to the open-source nature of AI research. To drive discovery, many of the largest companies, like Google, have made their AI tools open source.

Consequently, the gap between the largest AI research division and a scrappy AI startup is not as large as it might be in other industries. But it also means the advantage the U.S. enjoyed by being an early adopter and research leader has shrunk significantly, allowing Chinese companies to catch up.

Right now, in terms of (making) money, China is better. Companies … can scale faster and the cost of talent is lower.” — Dennis Barrier, co-founder & CEO of Cathay Innovation.

A billion and counting
The most obvious and widely cited advantage is China’s population. With over 1.4 billion residents, China has more than 1 billion more people than the U.S., which means more people on their phones and internet, making decisions and creating data. The biggest advance in AI so far has been deep learning, a subset of machine learning. In machine learning, algorithms can modify themselves based on data. Deep learning has layer upon layer of machine learning as algorithms teach themselves to be better at tasks by identifying patterns in data over time. The trick is to have a ton of data to work with. Hence, China’s perceived advantage when it comes to AI companies.

Dr. Kai-Fu Lee, a former vice president at Google and president of Google China, is fond of saying that if data is the new oil, China is the new OPEC. Lee now heads Sinovation Ventures, a venture capital investment company with offices in Beijing, Shanghai, Shenzhen and Palo Alto. Sinovation Ventures currently has sizable investments in five China-based AI unicorns. In a December 2018 lecture at Stanford University, he noted that in addition to China having more people, those people did more.

“The usage is much deeper,” he said. “Chinese order take out 10 times more than in the U.S., use shared bicycles 300 times more than the U.S.”

Chinese AI companies have attracted a significant amount of venture capital dollars. In 2017, Chinese companies were involved in just 10 percent of global deals, but accounted for 48 percent of all AI funding dollars, according to CB Insights.

“The reward in the U.S. can be as big, but you have to wait longer,” Barrier said about choosing to invest in American AI startups vs. Chinese ones. “The ecosystem is not the same, and there’s a lot of acquisition here.”

Government attitude can also have an impact on AI companies; according to Lee, once the Chinese government made it clear it was very much in favor of AI innovation , it became easier for companies in Sinovation’s portfolio to do business with banks.

A potentially more significant aspect of the Chinese government’s support of AI comes from its Ministry of Education. The ministry is currently at work creating 50 “world-class teaching materials” for undergraduate and graduate studies, 50 “national-level high-quality online courses” and 50 “AI faculties, research institutions” or research centers; and training 500 more AI instructors, according to a report from the Center for a New American Security.

If China’s pool of data and educational infrastructure give it advantages, the U.S. can take comfort in the familiarity its AI giants have with enterprise and industrial integration, said Gregory C. Allen, an adjunct senior fellow at CNAS who wrote the report.

“(American) companies are becoming increasingly effective at partnering with enterprise and industrial application (of AI),” he said. “The AI-for-everything expectation (America) has is an opportunity that our businesses recognize and are aggressively pursuing.”

Expecting the U.S. or Silicon Valley to be the sole dominant force in the field, however, is unrealistic.

“In terms of AI implementation, China’s growing rapidly and cannot be stopped,” Lee said.

About Cathay Innovation

Cathay Innovation is a global venture capital fund, created in affiliation with Cathay Capital Private Equity. It was founded around the shared conviction that supporting digital entrepreneurs by providing them with a platform bridging 3 continents – North America, Europe and China – constitutes a particularly powerful value-creation strategy. As a multi-stage fund, Cathay Innovation partners with visionary entrepreneurs, committed to driving change through technology. Such transformation is accelerated by leveraging Cathay Capital Private Equity’s extensive network with corporates and solid experience in operational excellence. Cathay Innovation has offices in San Francisco, Paris, Beijing and Shanghai.


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