21. Okt 2019 Equities

Who has better artificial intelligence: the USA or China?

The USA is still the frontrunner in "thinking" computer technology, but China wants to be number one soon. This could open up interesting perspectives for investors.

  • China aims to be the leading power in artificial intelligence (AI) by 2030 – the USA is currently ahead.
  • But the Chinese AI market is growing quickly and can offer international investors investment opportunities.
  • Companies in the country benefit from strong domestic demand, political support and a tech-savvy population.
5 minutes to read

It was the famous "Sputnik" moment. The artificial intelligence (AI) program[1] AlphaGo by Google crushed South Korean Go champion Lee Sedol for the first time. When it comes to strategy, Go is much more complicated than chess.

That was in 2016. And just as the Russian satellite Sputnik’s orbit of the Earth kick-started the US moon-landing program, the Go defeat triggered an ambitious goal for China: by 2030[2] the country wants to be the undisputed technological leader in AI and leader in individual technologies by 2025. To that end, billions are flowing from the treasury in Beijing into intelligent software research and development by Chinese companies and research organisations.


AI is humankind’s 21st-century fire

It’s an undisputed fact that the social potential of computer intelligence seems almost unlimited. Sundar Pichai, CEO of Google, rather takes the view that artificial intelligence is more important for humankind than the discovery of fire or electricity. This means that those at the forefront of AI will have a decisive influence on the markets associated with "thinking" computer algorithms that will gradually blossom and will probably also benefit economically.

"Currently, the USA is still the leader when it comes to AI-enabling technologies such as machine learning,[3] semantic analysis[4] and cognitive computing,[5] but China is catching up,” says Tobias Rommel, manager of the DWS Invest Artificial Intelligence fund. “This should also interest investors who want to invest in the technology of the future."

The Chinese government is pouring billions into domestic AI companies. The goal is to be the global leader.

So, where does this giant power currently stand on AI? After all, it’s officially communist and often seen as a dictatorship when it comes to technological development because there is no democracy in China. Is Beijing's self-imposed goal of becoming the technological leader realistic?

One thing is certain: generous state support has already translated into rapidly growing revenues. Estimates suggest that the size of the Chinese AI sector will reach US$22 billion by 2022:[6] an increase of almost 60 per cent compared to 2018. 

The USA's AI leadership remains unchallenged

Important indicators show that the USA still has a clear lead. There are already more than 1,000 domestic AI companies, many of them with a large number of patents. They include internationally recognised names such as Google, Facebook, Salesforce and Microsoft, but also numerous well-known start-ups[7] such as Nuro, UiPath and Avant.

According to a study by the World Intellectual Property Organization (WIPO), the US IT and consulting company IBM, which operates the computer mastermind "Watson", has filed the most AI patents worldwide, with 8,290 inventions.[8] Ranked second globally is the software giant Microsoft, with 5,930 inventions.

In order to function, AI software must be able to analyse huge amounts of data in a very short time. This requires powerful hardware. Here too, the USA still leads, with companies such as Nvidia and Intel manufacturing fast processors and storage technology.


In image recognition, China is already in the game

But in individual specialists the tide is already turning. Forty-eight per cent of global investment in non-listed AI companies are now made in China, and this has not gone unnoticed. Chinese engineers are already among the global leaders when it comes to AI-supported visual data evaluation. This includes analysis of X-rays and satellite images, as well as facial recognition. Human language processing is another area where Chinese AI developers excel.

Companies such as SenseTime, Tencent, Unisound, Face++ and Baidu – the Chinese equivalent of Google – have forged ahead with powerful solutions.[9] The market research company CB Insights has identified at least ten "unicorns" in the Chinese AI sector: start-ups with a value of more than US$1 billion  whose shares are not yet traded on the stock exchange.[9]


The race to catch up on AI knowledge is in full swing

Nonetheless, the giant power in the Est still has far fewer AI experts. A study by Tsinghua University in Beijing shows that of about 200,000[2] researchers and engineers worldwide 30,000 currently come from the USA and just 18,000 from China. If the count is confined to experts listed as "world class", the USA has more than five times as many top researchers (5,518) as China, which currently has just under 1,000.

However, the gap between the AI rivals is narrowing in the knowledge base too. Analysis by the Allen Institute for Artificial Intelligence shows that Chinese researchers are constantly increasing their share of the ten most cited scientific articles on AI. In 2018, their share was 26.5 per cent.[9] By contrast, the USA had 29 per cent, and the trend is downwards. 

Will China manage to become the AI leader by 2030?

Chinese AI companies benefit from lax data protection and lack of privacy.

China's tech enthusiasm is encouraging AI development

DWS technology expert Tobias Rommel is also positive about AI development in China: "Compared to people in the West, Chinese citizens are often more open to new technology and willing to try new things,” he says. “For them, data protection and privacy fade into the background faster if they have the impression that an application makes their life more comfortable or safer. This allows researchers and companies to draw on enormous amounts of 'real life' data, which form the core of good AI development. From a long-term perspective, however, the deciding factor will be whether they can their products take off overseas."

Be that as it may, the fund managers at DWS Invest CROCI Intellectual Capital increasingly consider the Chinese AI market to be worth a look. Their investment approach is based on the economy’s structural transformation from physical capital to intangible capital, which includes AI patents.

AI is omnipresent in China

"If you travel to China, you’ll see that AI is already ubiquitous there", says Tobias Rommel. For example, AI analyses camera footage for buildings security and detection of traffic offences. Facial recognition systems have many applications and are used at concerts, for example. If they identify a criminal on the run, they notify the police.

The Chinese security sector is the main buyer of AI.

It is therefore not surprising that the Chinese security forces are currently the main buyer of AI.[6] The second biggest application is the finance sector, followed by marketing and transportation.

Even for Chinese school children, AI is already part of everyday life. In a secondary school in Hangzhou, AI serves the children their lunch. A computer scans their faces before serving each child with the meal that they have ordered. The computer then analyses nutritional data drawn from the orders and sends the parents suggestions for optimisation.

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1. Artificial intelligence is based on a learning software algorithm that analyses huge volumes of data, recognises patterns of information and makes complex decisions on this basis. Examples are household services that work using voice recognition or autopilots that adapt their driving style to a specific person.

2. https://eandt.theiet.org/content/articles/2019/09/ai-passes-go-where-next-for-chinas-artificial-intelligence-ambitions/

3. Machine learning is based on software that is not rigidly programmed but instead uses data evaluation to learn and function more accurately.

4. Semantic analysis includes the evaluation of intentions behind spoken or written text.

5. Cognitive computing tries to use software to simulate the functioning of the human brain and human thought.

6. Source: iResearch 2018

7. https://www.cbinsights.com/research/artificial-intelligence-startup-us-map/

8. https://www.wipo.int/edocs/pubdocs/de/wipo_pub_1055_exec_summary.pdf

9. https://www.scientificamerican.com/article/will-china-overtake-the-u-s-in-artificial-intelligence-research/

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