At the Guangzhou Women and Children’s Medical Centre in Guangzhou City, China, a computer programme is diagnosing common childhood diseases with an 85 percent accuracy rate.
It’s helping physicians save lives of sick children who can’t explain what hurts.
It uses deep-learning artificial intelligence software to comb through stored records of nearly 600,000 pediatric patients.
Then it combines this data analysis with other available information (i.e. clinical observation and existing physician notes) to come up with a diagnosis within seconds.
Meanwhile, at the Xianheng Hotel located about 1,200-kilometers northeast, in Shaoxing City, Zhejiang Province, a computer system combines artificial intelligence and high-definition cameras to detect misbehaving employees in the hotel’s kitchen.
Chefs who don’t wash hands, waiters who text while on the job, or janitors who don’t clean their stations are caught and a photo is sent to hotel management almost instantly.
The system has already been trialed by dozens of catering companies, and there are plans to roll out the system at more than 1,000 large-scale food establishments this year.
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China is winning the AI battle – for now
In 2017, China published its “Next Generation Artificial Intelligence Development Plan”, which laid out plans to become the world leader in artificial intelligence.
It aims to develop a domestic AI industry worth almost US$150 billion. The first step of that plan is to catch up with the U.S. on AI technology and applications by 2020.
The second step is to make major breakthroughs by 2025, which is intended to lead to the third part of the plan – the establishment of China as the world leader in the AI field by 2030.
But based on the number of AI-related patent applications being made around the world, China is doing well already.
China is ahead of the U.S. in key AI-related fields, according to a 2018 report published by U.S. business research firm CB Insights.
The number of patent applications with the words “artificial intelligence” and “deep learning” published in China has grown faster than those published in the U.S. (Publication is a step that comes after applications are filed but before a patent is granted.)
When it comes to deep learning, China has six times more patent publications than the U.S.
Deep learning is an advanced subset of machine learning, which uses algorithms to identify complex patterns in large amounts of data.
It’s the key to unlocking the potential of AI because it’s how programmes learn in a way similar to humans – through actual experience. Unlike humans, deep-learning programmes have a virtually unlimited capacity for data processing and storage.
This surge in Chinese patent applications is a direct result of intense funding of AI-related startups in China. More money equals more research, which leads to more patents.
In 2017, 48 percent of total equity funding of AI start-ups globally came from China, compared to 38 percent funded by the U.S. and 13 percent by the rest of the world.
This is a significant jump from the 11.3 percent of global funding China made in 2016. Its share of global AI startup funding quadrupled in just a year, and it’s not slowing down.
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Faster than everywhere else
According to International Data Corporation (IDC), AI spending globally is expected to reach US$52.2 billion by 2021. That’s a compound annual growth rate of 46.2 percent per year since 2016.
While the U.S. still has more AI start-ups than China – 1,400 vs. 380 as of 2017 – it won’t be for long.
IDC estimates China’s spending for AI will grow at a compound annual rate of 62.2 percent from 2016 to 2021. That’s 60 percent faster than the global average.
This flurry in Chinese spending and investment on AI is already starting to give rise to some of the world’s most valuable private AI-driven companies.
As of August 2018, China was already home to 14 Chinese AI unicorns. (Unicorns are a term used for private companies that have a value exceeding US$1 billion.)
These include Chinese voice recognition leader iFlytek Co., drone maker and global leader DJI, as well as humanoid robot builder Ubtech Robotics.
All totaled, these 14 Chinese AI unicorns had a combined valuation worth US$40.5 billion about six months ago.
The impact on China’s economy
PricewaterhouseCoopers recently projected AI will add US$15.7 trillion to the global GDP by 2030, with China taking home US$7 trillion of that total, dwarfing North America’ US$3.7 trillion.
That’s enough to grow China’s economy by about 50 percent thanks to AI alone.
In short, AI will be a big part of China’s economic development over the next 20 years.
We’ll continue to hear more stories like the computer systems that diagnose sick children and maintain watch over commercial establishments to ensure quality and safety.
We’ll hear more about self-driving cars, cashier-less convenience stores and entire digital cities that monitor everything that happens (i.e. traffic, crime, temperatures and electricity use) in real time.
Anyone who ignores this market is missing out on a huge opportunity.
It’s probably why U.S. President Donald Trump just announced the American Artificial Intelligence Initiative.
The executive order aims to better educate workers in the field, improve access to the cloud computing services and data needed to build A.I. systems and promote cooperation with foreign powers.
But it could be a case of too little, too late.
How to invest
If you’re looking to take advantage of China’s determination to lead the world in AI technology, the KraneShares CSI China Internet ETF (Exchange: New York; ticker: KWEB) makes for a good proxy.
The ETF’s portfolio is made up of three of China’s biggest technology companies, including social media giant Tencent Holdings (Exchange: Hong Kong; ticker: 0700), e-commerce behemoth Alibaba (Exchange: New York; ticker: BABA) and China’s dominant internet search engine, Baidu (Exchange: New York; ticker: BIDU). It also has dozens of smaller internet-related and e-commerce firms rounding out the portfolio.
This is important because China’s biggest AI investors are also its biggest technology companies. The fund has managed a three-year total return of 55.6 percent, and since the start of 2019 has already gained 18.6 percent, wiping out half of last year’s 35 percent decline. So while this ETF could be a good way to invest in China’s AI revolution, to say that this ETF is volatile is an understatement. Invest accordingly.
Editor, Stansberry Pacific Research
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