Imagine a country with an army of techies, a government that supports AI and blockchain by setting a mandate and investing billions, large scale tech companies that are rapidly experimenting and implementing at scale, and an abundance of data to feed the application of these technologies. This just about covers the AI and blockchain playground that is China. The gloves are off, and over the coming years some of the greatest advancements will emanate from the east. Here’s why.
An ambitious AI strategic plan was laid by the China’s State Council in July 2017, aiming to create a domestic 1 trillion yuan ($150 billion) AI industry by 2030. Following this, Chinese president Xi Jinping called upon his country to take the lead in developing new technologies like artificial intelligence, the internet of things, and blockchain. Last year alone China’s AI sector received $28 billion in investment, and that level of investment is set to continue as all of the tech giants and banks are actively investing and up-skilling their capabilities. For example Baidu is betting big on developing smart home speakers, translation software, and self-driving cars. E-commerce giant JD.com has established a Smart City Research Institute that aims to facilitate the development of ‘smart city’ construction with the use of AI, big data, and blockchain technologies. Another example is SenseTime, which received $1 billion in investment from Alibaba to focus on facial and image recognition through combining computer vision and deep learning.
But how much of this work is really new and ground-breaking? A recent study produced by Startup Genome analyzed all of the patents in AI and concluded that China now ranks as No.1 in the world. The country has exhibited widespread experimentation, coordination, and application of AI across multiple industries. Factor in the concept of ‘cross pollination of technologies’ such as mixing AI with blockchain, IoT, or even cloud, and the whole is much greater than the sum of its parts.
Consider JD.com ‘Smart City’ initiative, which is leveraging AI, big data, and blockchain technologies. The company is applying blockchain tech in various aspects of its business from its logistics and supply chain to issuing blockchain asset-backed securities. In August, JD.com revealed its new Blockchain-as-a-Service (BaaS) platform. The tool, called JD Blockchain Open Platform, will purportedly enable businesses to build, host, and implement blockchain solutions without having to develop the technology from scratch.
According to Yu Jianing, Director of the Institute of Industrial Economics at the Ministry of Industry and Information Technology, over the next three years, the cutting-edge technology is expected to be widely integrated into sectors that require product traceability, copyright protection, bill verification, and precision marketing. It will also be used in the energy and healthcare industries. We’re seeing the early signs of a complete industrial chain with blockchain at its core, ranging from hardware manufacturing, platform and security services to application services, investment, media, and human resources services. As of March 2018, the number of blockchain tech companies in China exceeded 456, while there have been an estimated 249 deals related to blockchain companies. Back in 2016, just 60 funding rounds were recorded — five times more than in 2015.
Globally, of the top 10 companies holding blockchain patents in 2017, seven are Chinese, including the one with the most patents, Alibaba. With the high number of counterfeit goods in China, blockchain technology has wide applications in supply chain management, since it can create a secure and auditable record of product’s journey in the supply chain. Alibaba recent helped Chinese liquor distiller Kweichow Moutai prevent its rice wines from being counterfeited, for example, by providing a public ledger for digital transactions. This approach could also benefit Chinese farmers who have struggled with food safety issues and scandals. China’s e-commerce giants are already implementing blockchain food-safety and fraud solutions.
The largest challenger bank in China was founded by Tencent, called WeBank. Today, WeBank has more retail customers than JP Morgan Chase has in the United States. WeBank, based in Shenzhen, has a real-time blockchain core, can monitor marketing campaigns, transactions, applications, cyber security threats, and everything else operationally in real-time with an impressive control center in the heart of Shenzhen. With more than 80 million retail customers, this three-year-old bank is a phenomenal player in the Chinese ecosystem today, with a J-curve growth path and no sign of slowing.
The success of tech giants in China has shocked incumbents into action and has been doing so for a few years now. Today four of the top five retail banks have deployed blockchain core systems for core retail activity. All of them now offer their suite of retail products via mobile, an innovation forced on them by the likes of Ant and Tencent. AI investment in the top 10 Chinese banks dwarves that of the entire US banking sector. The risk of fintech and tech disrupting China is very real, with more than 40 percent of deposits now moving outside the mainstream banking sector. None of the top 50 banks in the US has a blockchain core.
A great example of innovation among China’s incumbents can be seen with the Bank of China as it embarks on a spree to invest as much as 1 percent of its annual income into researching the new tech areas. Last year alone, the total revenue for the bank was upwards of $70.9 trillion. Along with the new R&D program, it is building three new tech platforms — supporting big data, cloud computing, and artificial intelligence. The Bank of China is using blockchain technology to operate each of the three areas as well as a dozen or more other projects yet to be revealed. Most likely, the new plans will revolve around banking services, although it’s still early days. The bank currently holds 11 patent applications for blockchain technology, which puts it in the top 20 of global businesses and number one in China. The patents held are mostly for specific problems that it needs to solve, such as storage issues, tracking, and security.
Unfettered by privacy regulations and debates, companies in China are relatively free to harness the gigantic amounts of data on consumption, payment, healthcare, and transportation from China’s estimated 750 million internet users to perfect their algorithms and test new products. The rapid advancements in smart cities and the tech that underpins this will only add further fuel to the vast reservoir of experimentation opportunities already at the disposal of Chinese innovators — from the national data trove of personal IDs to cross-referencing photos with their own data sets to develop facial recognition technologies.
What a dream playground to be able to break new ground in.
Pat Patel is Global Head of Content for Money20/20, the fintech and payments conference series.