Why the internet is yesterday's news in China's digital leap forward

In May 2017, China hosted the historical Go match between Ke Jie, the world’s No 1-ranked player and world champion, and the AI-enabled computer program AlphaGo, designed by Google’s DeepMind Lab. The Wuzhen showdown was ripe with suspense and symbolism – human vs. machine, intuition vs. algorithm, tradition vs. modern – and, with the AI machine’s straight 3-0 win over best human player, the sense of the unequivocal rise of the “digital economy”.

Almost overnight, the internet business community in China started discussing “the second half” of the mobile economy era, which in 2013-2016 drove a boom in e-commerce and mobile entertainment. In particular, the image of the top human player crying at his loss to an AI triggered a great sense of determination and urgency among Chinese businesses and companies in the field: Either adapt the fast-evolving technology of AI, big data analysis and computer chips to upgrade – or be destroyed. Since 2017, the new key words have been “data” and “intelligence”.

Across just about every industry sector, Chinese companies are investing heavily in research and development of the latest digital technology. The largest internet companies, such as Alibaba, Tencent and Baidu, are investing billions in building new research centres, hiring experienced AI experts and young data scientists, and setting up labs to work on the latest algorithms, smart robotics and self-driving cars.

Meanwhile, technically savvy and internationally educated entrepreneurs with compelling technologies have easily attracted venture capital to set up start-ups that bring niche AI applications to a broader market. For example, Megvii, SenseTime, Yitu Technology and CloudWalk are collectively referred to as China’s “Four CV Dragons” in the computer vision (CV) sector. Besides facial recognition, the CV companies have also used AI technologies to transform a variety of industries from finance to entertainment, transport to healthcare, and more.

Tencent – the highest-valued Chinese internet company, which has roots in gaming and online services – made dramatic changes in response to the new trend. In 2018, for the first time in six years it announced a major restructuring to move from a consumer business towards one that caters to industries as well. The restructuring includes the creation of a new cloud and smart industries group, focusing on artificial intelligence, cloud service, big data and security; furthermore, Tencent formed a new technology committee to better coordinate fundamental technology research at different parts of the company.

Almost all the Chinese tech players are heading into the same direction as Tencent. They are rushing to learn how new digital technologies, including the internet of things, AI, blockchain, cloud computing and data analytics can be integrated into their businesses to unlock value from non-traditional angles. In short, China’s consumer-focused internet is transforming into a more enterprise-oriented internet, characterised by more advanced digital technologies and faster 5G mobile networks. The transformation of businesses and industries has been more profound than from the mere addition of internet.

That has profound implications for emerging markets that are looking at China as a reference case when they work on their own digital transformation. That means they need to look beyond mobile phones and the digital wallet; instead, they must start positioning themselves for the next phase – AI and the digital economy – now. The billion-user messaging service of WeChat, $30 billion and more total GMV (“Gross Merchandise Value”) in 24 hours on Singles Day, and “smile-to-pay” functions creating a cashless society are already screenshots from yesterday.

For example, yes, the 11 November (Singles Day) festival remains the world’s largest online shopping day, beating Black Friday and Cyber Monday combined. However, the highlight of late is no longer the GMV number, but the advanced data technologies involved. Because the logistics issue of Singles Day – the inventory, distribution and delivery of numerous orders in a short span of time – is such a challenge, Alibaba’s logistics affiliate, Cainiao, has used AI techniques and GIS (Geographic Information System) to determine the fastest and most cost-effective delivery routes in a variety of complex road networks, including both rural villages and crowded urban areas.

China’s leaping forward may also give emerging markets a sense of urgency. It may also be a leapfrogging opportunity for them if they embrace the new technology revolution as keenly. From “mobile” to “digital”, what’s truly extraordinary is the decisive commitment from the China government.

In 2015, the “internet plus” was still the keyword of the government work report, but soon the government announced a sweeping vision for AI and digital economy excellence through a series of policies and initiatives. Perhaps it was a coincidence of timing, but soon after the Wuzhen Go match, China’s central government released the Next Generation Artificial Intelligence Development Plan in July 2017. By 2019, “intelligent plus” was the new keyword in the government work report.

Meanwhile, the digital revolution may impose significant challenges for many smaller countries, especially those lacking technology resources and with large labour forces that might be replaced by AI. In particular, less-developed countries and emerging markets face an uphill battle as latecomers to the AI game. AI runs on data and that correlation leads to a self-perpetuating cycle of consolidation in industries: The more data you have, the better your product. The better your product, the more users you gain. The more users you gain, the more data you have. That’s why global dialogue and cooperation is ever more important for the next phase of the global digital economy – a shared digital future.