Tuesday, August 21, 2018

China’s quest for artificial intelligence

By Daniel J. Graña, a guest columnist

China is rapidly making a name for itself in the AI space. The buzz around this new digital frontier has been growing over the past year, and the government is working with the country’s tech industry, from start-ups to established firms, to promote AI research and infrastructure.

During a recent visit to China, we were surprised but enthusiastic to meet so many innovative, hardware technology companies focused on AI-enhanced tools. The offerings included machine vision — a rapidly growing branch of AI that aims to give machines sight comparable to our own. We were also shown industrial automation, voice recognition devices, and mobile chipsets designed to better tackle machine-learning tasks. China’s tech sector benefits from a pool of Western-educated engineers and local graduates, along with a wealth of government assistance. 

Eyeing high-income status

Spurred by concern that China imports $200 billion in semiconductor chips, President Xi Jinping’s government views the development of the tech industry as a key ingredient in moving the country from middle-income to high-income status. The trade rift with the United States, with its possible implication of lost access to high-end U.S. technology, is deemed a national security threat.

China has put in place a robust plan for state funds and localization targets. At this stage, there is a gap between the proposals and action. While success isn’t guaranteed, the medium-term targets include some chip makers and telecommunications companies in the United States, South Korea, and Japan.

Embracing surveillance and facial recognition

There is a multitude of possible AI applications, but the companies we met with are concentrating on two end markets: surveillance and autonomous vehicles. A systems integrator, a maker of optical-related products, and a startup that focuses on facial recognition are among companies that have carved a niche in this space. Given the lack of concern about privacy in the country, Chinese companies are likely to be global leaders in AI-enhanced surveillance and facial recognition technologies going forward.

China currently regulates traditional and social media, including television and online posts. Surveillance technology backed by AI promises to cement the government’s ability to control and influence every aspect of society and the activities of its more than one billion people.

The autonomous vehicles race

Nowhere is the enthusiasm for self-driving vehicles more apparent than in China, the world’s largest car market. Domestic companies are working with overseas vehicle makers to develop a platform for autonomous vehicles for the Chinese market. Pedigreed venture capital firms are investing in Chinese robotics companies. 

With China’s demand for cars showing no signs of slowing down, it is likely the country will be among the first to make the transition from traditional automobiles to autonomous forms of transport.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of Putnam Investments or TEXPERS.  

About the Author:
Daniel J. Graña is the portfolio manager of Putnam Emerging Markets Equity Fund. He also manages an institutional portfolio of Asian ex-Japan equities. Previously at Putnam, he was an analyst in the Equity Research group, covering emerging markets with a focus on the financial and consumer goods sectors, from 1999 to 2002. Graña joined Putnam in 1999 and has been in the investment industry since 1993.

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