Increasingly innovative, the Chinese tech giants are asserting themselves as serious competitors to their American and European counterparts. But unlike the GAFA, the line between their strategies and those of Beijing is hard to define, to the point of creating widespread mistrust abroad.
The BATX (Baidu, Alibaba, Tencent, and Xiaomi) have finally brought to fruition Zouchuqu Zhanlue (or ‘Go Out’) policy. This policy of international expansion, launched by the Chinese government at the end of the 1990s, has played a major role in helping home-grown industrialists take part in globalization. The tech giants, who have taken the time to develop within the shadow of the Chinese state, are conquering the planet.
First we take Asia, then the world
The first step in the BATX’s strategy was to gain an advantage over their regional competitors. In a few years, they have taken control of several tech leaders in neighbouring countries, helped by Chinese diasporas located throughout the region. This is the case with Go-Jek, the Indonesian unicorn specializing in scooters bought by Tencent, or the Singaporean e-commerce startup Lazada, now owned by Alibaba. The BATX are even buying up strategic assets in these countries, like the 10% of the Singapore Post acquired by Alibaba in 2014. "The BATX have benefited from the reluctance of Asian investors towards the digital market, and the GAFA’s passivity, to exploit entire countries," says Martin Pasquier, general manager of Singapore-based digital services consultant named Innovation is Everywhere. Some exceptions remain, like Amazon, well established in India, or Google, which has set up an R&D centre in Singapore. "They are a bit late to the show," notes Pasquier.
The BATX have also invested in content production. Tencent, highly present in video games in China, has invested in this sector in Thailand, Singapore and even Finland, with the acquisition of Supercell, publisher of Clash of Clans. Xiaomi, the smartphone maker, has applied a similar strategy in India, buying a company broadcasting audio and video content. More recently, the Chinese tech giants have led a remarkable offensive in the US market. Alibaba has invested in several Hollywood films, including the latest episode of the saga Mission Impossible: Fallout, while Tencent is expected to finance the next film by James Cameron, the director of Titanic. The aim of these players is clear, to dominate all digital markets vertically for the commercialisation of both the media and broadcast content. The BATX also aim for technological excellence, with the goal of seizing global leadership.
The victory of the AlphaGo artificial intelligence program, developed by Google, against the Korean world Go champion Lee Sedol in 2016, created a shockwave in China. This newfound awareness of AI’s potential led the Chinese government to make it a national priority. The following year, Beijing published its "Next Generation Development Plan for Artificial Intelligence." Spread over three years, it aims to enable China to become the world leader in AI by 2025, in particular through the construction of a technology park dedicated to AI. The tech giants are naturally at the forefront. Jack Ma, the leader of Alibaba, has announced a $13 billion investment in AI. Baidu, meanwhile, inaugurated a deep-learning institute in 2013 and Tencent is working on this sector in its center in Silicon Valley.
Winning the AI war
This strategy quickly delivered results. Today, China's progress on AI is close to, if not ahead of, those of the American giants. For example, Baidu image recognition is 95.4% accurate, compared to 95.2% for Google. The BATX even pushed their advantage by investing in hardware for artificial intelligence. In 2017, Alibaba acquired an equity interest in the Chinese startup Cambricon, which develops chips specially designed for AI applications, and which is a rival of the American Nvidia. In 2018, Jack Ma's business invested in the Hong Kong-based SenseTime, a facial recognition specialist valued at more than $3 billion.
China is also succeeding in developing some of the tech industry's most prominent new companies. This is the case of iFlytek, a startup based in Hefei, which has become one of the world leader in speech recognition. It prides itself on being able to isolate and transcribe a voice out of twenty other voices in a group conversation. The success is such that China is becoming a key partner for Western organizations. In connected medicine, for example, companies in England are now using Tencent to integrate AI into their medical devices. The GAFA have been increasing investment in China. Since 2017, Microsoft and Amazon have announced the opening of AI research centres in Shanghai.
Unlimited access to data
In the global AI race, Chinese giants enjoy a major competitive advantage - almost unlimited access to user data. Thanks to the economic model built around giant ecosystems (see related the article on Tencent) these players have access to all the data of their customers and can cross reference their information. "For example, Tencent developed WeBank (the first online private bank in China) and doesn’t hesitate to cross reference the bank data with that of its WeChat application, where users' profiles appear," explains Martin Pasquier. Data is the indispensable fuel of AI. "There is no doubt that China will win the AI war," says the Innovation is Everywhere consultant.
CEOs and Communist party members
At the end of November 2018, the world of tech was floored when the Chinese Communist Party revealed that Jack Ma was officially one of its members. The leader of Alibaba, who was welcomed like a rock star in all Western countries, had up to that point embodied modern, technophile China. This news, which shed new light on the links between the Chinese state and the tech giants, rekindled the suspicion that behind each Chinese tech investment lie political motives.
The BATX owe a lot to political power. It is thanks to public investments in digital infrastructures launched since the 1990s that these giants have been able to take off. In the early 2000s, their rise became one of the priorities of Beijing’s Five-Year Plans. Also, the state didn't hesitate to oust Western players from the Chinese market, like Google, Yahoo or Facebook, to protect its flock. But the BATX still enjoy relative political independence. The tone changes radically when IT became an issue of international competitiveness.
Upon his arrival at the head of the Chinese state in 2012, Xi Jinping abandoned the government’s low profile on international scene strategy and shouldered the global ambitions of his country. His goal is for China to become the world's leading power. To achieve this, China needs to be technological superpower. Beijing has launched Made in China 2025, a vast plan to upgrade its industry. Robots, mobile networks and big data technologies have, then, become strategic priorities. From 2016 on, following the AlphaGo shock, artificial intelligence became a must for Beijing as the yardstick of its international power.
Economic and actual battlefields
The global competition that has accelerated in recent years around AI is explained by the central role this technology will hold in many sectors in the future. This is the case with the autonomous car. The Baidu search engine has teamed up with Chinese automakers JAC, BAIC and Chery to launch its own models this year. More strategically, AI will be a defining military weapon on tomorrow's battlefields. The South China Morning Post, which has been owned by Alibaba since 2015, recently unveiled that artificial intelligence technologies had been incorporated into Chinese nuclear submarines. "On dual technologies, like AI, there are contracts between companies' laboratories and the army. The Chinese do not dissociate the two," says Julien Nocetti of Ifri.
However, this back and forth may slow the growth of Chinese players by making their Western scientific or commercial partners more suspicious. The ZTE and Huawei cases come as a stark reminder.
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