Why China's AI Strategy Just Might Work — With Grace Shao

31:29right now who actually even there's one who works in Silicon Valley we were talking about it recently and he was so reluctant to try out AI he's like I don't need someone to write my emails for me I can do that myself I'm like dude you literally work in tech how are you not using this to enhance your productivity he's like no no no no like are they just like polishing my emails for me I'm like you're not trying the deep research like products you're not trying a lot of the products that can actually help you You cut like one third of your time. And I think there's that definitely mentality difference.

31:59I think you're hitting on a good point here, which is that I think the conventional wisdom in the U.S. has been like, why can't China compete before DeepSeek? The mentality was why can't China compete on AI? And I think that everybody in the U.S. knew that the data protection was not anywhere close to what it is in the United States. I also think that there was an awareness that Chinese companies were getting around export controls from the U.S., but definitely not to this extent that people in the U.S. are aware now. Like, clearly, there's a lot of GPUs that have gone through Singapore and then go right to China.

32:36And that is that might be tougher to get to. So data. So the Chinese companies had more data. They had the compute. But I think the thing that people in the U.S. underrated was the entrepreneurialism of China. I think that China was basically looked at as like, you know, a more collectivist society that has less entrepreneurialism. But clearly, there is a lot of entrepreneurialism. And maybe that was due to the fact that China clamped down a little bit on entrepreneurialism for a while. And now it seems like it's back in style. But clearly, I think that's something that was underrated by people in the West.

33:15I think definitely I think you know look um I actually was working in Alibaba during the clampdown it was quite a like wild ride um in the sense of you know like the stock market just you know and um we saw a lot of U.S. capital pulling out of China and to your point actually I think entrepreneurialism or entrepreneurship in China was always quite vibrant, but it was seen in a different way because the last generation of entrepreneurs were very different. And it goes back to the ones born in the 60s, 70s. A lot of them, and I'm not saying it's bad, it's just that their business model was this happened in the US.

33:58Like there's Amazon, let's create Amazon China, but make it like more Chinese, right? there's a whatever there's a there's a whatsapp let's make a whatsapp in china but make it better or right so the mentality was like can we copy copying then innovate right and i think um the uber founder said this on alden podcast even quite recent like a couple months ago he was like when he was trying to fight um dd in china back in i think the early 2010s he's like he was madness the copying culture is madness he's like we'll come out with a new product and the chinese competitor will just come out in another week and they're very proud they're like we just did it better and then like they'll come out with a new product and they spend all their r d on it and obviously u.s engineer is extremely expensive and chinese talent especially then was just frankly cheaper and they'll come push it on a new one and at one point he's like actually just couldn't keep up because they were able to churn out a copycat version within a week or two but then it at one point just turns to innovation so that was the last generation of entrepreneurship and we actually if you look back at it whether it's baba or tencent or any of these big tech companies their initial big pot of gold per se were all american or at least western okay actually like u.s investing in china was extremely extremely super vibrant all private equities had presence there like the war breaks the hikars and whatnot okay like and then all hedge funds had public like publicly listed companies of adrs they had positions in them it's just that during 2020 to 2023, China's internet industry had a bit of a, went in a little detour, okay?

35:32And that was caused by domestic regulatory issues where there was a lot of anti-monopoly probes and kind of investigation went to the doings of Alibaba and Tencent, et cetera. And there was a bit, and the rise of kind of, I guess, geopolitical tension kind of came to the forefront of even business narratives. I think there was an understanding before where politics was politics, but business went on as usual before that. But during that period, China-US political tensions actually became the front and center of even business relationships. And we saw a lot of US capital pull out. And therefore, we actually did see a huge dip in just the confidence in the Chinese economy and honestly, the Chinese internet space for a little bit.

36:18Now, AI has definitely, definitely powered it again and even like you mentioned when we were chatting you know like um like baba stock prices went shut up again like you know like now people are discussing is baidu a good buy i think they become kind of like the weather wane of chinese economy and chinese tech because the assumption is these big tech companies can actually leverage whatever ai innovation that comes through given certain restrictions u.s private equity firms and vca firms still cannot invest in Chinese AI companies directly. The best way to get exposure to this innovation is through public investment into these Chinese big tech right now.

36:57Yeah, it has been interesting to see the culture shift. And you mentioned you were at Alibaba during the clampdown. I mean, Jack Ma basically, as far as we know, disappeared for a while, but he just made his way back into Chinese public life. That was a good sign, I think, for everyone. I don't have him on my speed dial. He's not my best friend or anything but can you call it bring jack into the podcast you gotta get him in to tell us what happened uh but okay but it is interesting because you know i it is it does seem to me and i think this is important to talk about that there has been a after deep seek like you know people saw deep seek and then we started talking about a u.s context within china there has been a big change in terms of the way that the government thinks about tech, entrepreneurialism, and artificial intelligence.

37:47And it was really interesting to read some of the coverage when China has this annual meeting, the National People's Congress, and it was all about tech and AI this year. This is from Bloomberg. AI fever sweeps China's political huddle fueling tech optimism. For some years now, China's annual gathering of its national legislature has been an increasingly disciplined and choreographed affair. Its muted vibes particularly an echo of deepening concern about domestic stagnation. Not this time. The National People's Congress seven-day gathering came on the heels of a breakthrough in artificial intelligence by China's homegrown startup DeepSeek that's fired up investors, politicians, and even regulators.

38:28It also followed President Xi Jinping's high-profile meeting with business chiefs, including Jack Ma. In this meeting, Communist Party cadres from different regions competed to market their locales as China's next AI hub. Lawmakers made a raft of proposals from promoting AI-related education and scaling up the technology's application to boosting research and regulating the social impact. I mean, I think people outside of China need to pay attention to this. That is a major, major shift for the government. yeah definitely i think there was um well there's been a lot of like municipal level or provincial level policies throughout the country that's really been boosting ai per se and like i said physical ai especially in areas like zhejiang province or guangdong province where they're strong on manufacturing they're traditionally manufacturing hubs and they're actually home to the overlooked kind of the tech companies like Zhejiang's home to Alibaba, G-Li, the EV company, well, leading EV owner as well, and Guangdong, where it's like DJI, SenseTime, a lot of them are all in this area, the GBA area, Greater Bay Area, what they call.

39:41So there was that. But this time with the AI policy push at the two sessions, it's something I think is a really positive signal to everyone because it just means that actually on a macro level, the government is very supportive of AI entrepreneurship, like you said. And it wasn't ever like explicit that the government did not support entrepreneurship. It's just that the last couple of years, coupled with COVID, frankly, was quite tough on the domestic economy. And I think, you know, when the world was so used to double digit growth for like so long, all of a sudden when it came down to like 5 % GDP growth was there was a bit of a readjustment of expectations, whether it's domestic or internationally.

40:23So I think this just boosts that confidence a little bit. And I think, again, coupled with what I said earlier, that this generation of entrepreneurs are a lot more mission-driven than money-driven, I find, when I read about them. It's quite different. The whole atmosphere is quite positive. And it's really amazing to, speaking of the entrepreneurs and sort of the celebration of them, it's kind of amazing to see what's happening with the DeepSea founder, Lang Wenfeng. Am I pronouncing it? Yeah, I mean, you have to like, we have to talk about what's going on in his hometown, which you mentioned, this small village.

41:07This is from the Times. The village where his parents moved was small and now sees his fame as their opportunity. The village has become a shrine to the man they call Top Scholar. He was a star pupil who was the top of his class and finished the high school math curriculums three years early. The street leading to his house has been renamed Top Scholar Road to serve the tour parties that visit. They are now selling top scholar biscuits, top scholar hot dogs and deep seek baseball hats. It's pretty amazing. It's really funny from a Western perspective. But I think if you if you actually look back at Chinese like more like recent history in the last even couple hundred years, I mean, except the culture revolution, like scholars were actually a really celebrated and recognized way to pick even.

42:00like politicians and like leaders in the government way back you know and it's like the Chinese society really really values and they call this the zhuang yuen so you can be the zhuang which means you are the number one scored person of your city or your province and whatnot and these people will go on to go to the like I said the Beida, Tsinghua which is the Peking U, Tsinghua University, Zhejiang University, etc. And even to this day, you know, like it's so very celebrated if you were like the number one of your city or your province and you definitely wear with a badge of honor wherever you go.

42:40It's not that different from like, you know, scoring number one in your high school in the US, like, you know, we all had a valentadorian, you know, in that sense. But I think there's more societal recognition and praise. And because of his frugal beginning, because like you said, it's literally like a village. I think it just contrasts like the kind of success he had. It's a bit more, it's widely celebrated because China also celebrates this idea of like upward mobility because there's still such a huge actual income disparity within China. Like if you think about China, the modern China, you think of Beijing, Shanghai, the quality of life is no different from New York or LA, right?

43:22But if you think about actually the vast majority of China out in the third, fourth year cities, you're actually looking at still a developing nation. So he came from that kind of background. And now to be one of the most celebrated entrepreneurs in the world even for this innovation, it's a huge pride for the family and the folks back home. Yeah, you and I spoke before this recording, and I mentioned that I spent a day in China on a stopover, but did leave the airport. And that does not qualify me to speak at all on China, although it was a lovely visit. But as we left Beijing and went to the Great Wall, I saw some, I think I saw some of those villages.

44:06And it was pretty astounding to see sort of, yeah, it's undeveloped. And it's very different from, you know, the big cities where that's a lot of people's picture of China today. Yeah, for sure. I think so. I spent the last nine years across Asia. So now I'm in Hong Kong, but I've spent time in Singapore, Beijing and Shanghai as well. and when I so for context my parents are from Beijing so I did grow up visiting Beijing here and there but even then I never actually lived in Beijing as an adult or really understood this country and when I was a journalist traveling around the country I was astounded by the income disparity the the awareness of the outside world if you talk to people on the streets in Beijing Shanghai especially like college educated kids um people are quite fluent in English you know you can talk about Obama, you can talk about whoever, and they know about it really well.

44:58Like if anything, Chinese school system actually really focused on what's happening in the world, outside the world as well. Like that's part of their education. But then you go to like a third tier city and because my Chinese wasn't that good, especially when I first moved to China, and they're just like, people just come up to me because I had a slight accent. And they're like, are you Korean? Are you Mongolian? And I've had crazy questions like, are you Arabic? And I was like, I'm Definitely not any of those, but it's just like this very siloed world of these little cities. They don't actually even travel to other cities within the country, and they've definitely not seen foreigners.

45:35And they have a very small lack of awareness of what's happening out in the world. So when we think of China, sometimes you need to think there's the Beijing, Shanghai, and Shenzhen, and then there's really the rest of the country. Definitely. And I guess from what I saw, if you drive outside of Beijing, maybe not even that far, you can be in that countryside. So I want to take a break because, well, we do need to take a break, unfortunately. But I want to come back and talk about three topics. And then, Grace, we can let you get on with the rest of your day. But I want to talk about robotics quickly.

46:10I want to talk about development, some other developments, including this one area that has what you call these six dragons. And then if we can get it in a minute about Manus and agents. So we're going to take a quick break and come back right after this. Did you know your credit card points and miles can lose value to inflation? Credit card companies often reduce the redemption value of your points and miles. Now, imagine a credit card with rewards that can grow in value. With the Gemini credit card, you can earn Bitcoin or one of over 50 other cryptos instantly with no annual fee. Every swipe at the store or gas pump earns you instant rewards deposited straight to your account.

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47:33You're used to hearing my voice on the world bringing you interviews from around the globe. And you hear me reporting environment and climate news. I'm Carolyn Beeler. And I'm Marco Werman. We're now with you hosting The World Together. More global journalism with a fresh new sound. Listen to The World on your local public radio station and wherever you find your podcasts.

48:00and we're back here on big technology podcast with grace chow she is a hong kong-based writer and analyst you can get her newsletter ai pro m on substack it's a-i-p-r-o-e-m dot substack.com and grace it's great having you here thank you again for fielding all these questions. You've mentioned robotics a couple of times. So let's just go there and spend a little bit more time. The videos I see on Twitter of Chinese robotics are insane. They have a level of adeptness, flexibility, awareness that is above and beyond, I think, anything I've seen coming from Western companies. Of course, you've had Elon Musk with a person in a robot suit.

48:46Okay, maybe they've had some other people piloting the optimists. But the stuff that we're seeing from China has been pretty, pretty impressive. So give us the state of humanoid robotics in China in particular. And where can we expect this to go? Yeah, I think to start with, I think in the start of the year at CES, people were saying there were like more than half the exhibitors were Chinese. and majority of them were actually robotic companies. And, you know, like you said, there's humanoid robots, like the one that kind of went viral, which is like the dog, the robotic dogs from Unitree. And then, you know, you have obviously the other variations of embodied AI products.

49:31I think in China, industrial robots not been new and that demand for industrial robots not been new, right? Like we've, you know, like everyone's talking about, you know the aging population the urbanization the reluctance to work in manufacturing labors etc and even you know cost increase of human labor that's been happening in China all of these have driven a lot of companies find industrial robot solutions and that's been around for at least the last five ten years right but now I think human robots in China is really interesting right now is because it's very rare for, I think, a place where you can have the engineers to actually understand the software and then the hardware.

50:14And that's where China's kind of, I think, strength in the last couple decades of being a manufacturing hub really plays into it now because it's been the manufacturing hub for basically all appliances we can think of under the sun, like any home appliance we can think of, right? there's a lot of know-how of hardware building in layman terms right in that sense and I think beyond that now we can embed this kind of embed AI into and software into it what was the word for

50:54mechatronics so the understanding of mechatronics is something that you know really China's had a huge advantage in and even jensen huang himself he was at hkst hong kong university science technology in november last year for a fireside chat and he was saying look this gba air which is the greater bay area has all the talent in the world to lead in this technology because you got the um headquarters of dji you got the headquarters sense time and this those companies kind of like the last generation AI companies, they really trained up a whole generation of engineers and mechanical engineers who are able to really embed software into hardware.

51:35So there's definitely that. And then on top of that, because it's been a manufacturing hub, it's just frankly cheaper. Like the supply chain is just here locally. You can source everything here. So we're seeing that, you know, Unitree Robotics currently account for about 70 % of global sales of humanoid robots 40 of market share of quadruped robots and that's just like a solid leader in the lead industry and I think their cheapest model goes for something like sixteen thousand dollars so it's crazy that you can just have that we're seeing other robot companies like Galbot etc like all of these coming out as well they're selling them as like nanny robots you know they can help you you know clean your dishes and throw your garbage out whatnot it's really crazy how advanced these technologies are in terms of their abilities of movement my concern is right now actually the lack of regulation or safety kind of standard for them as a mother of a young kid I would never ever bring in a robot to my household because you just don't know if it can go rogue right and I think that's kind of the current discussion around this globally as well as in China really why it's not really gone to mass consumer market yet That is fascinating.

52:49I think just the advantage that you're talking about is, you know, it's you've elucidated so well. It's just the fact that China has the hardware and the software and being able to be so intimately familiar with both just gives you a massive leg up when it comes to humanoid robotics. That's that's fascinating. I want to go now to a, we talked a little bit, we had people who are interested in like, where is some of the other innovation within China coming from outside of DeepSeek. And we've talked a little bit about the productization. We've talked a little bit about what Alibaba is doing. And I think it would be instructive to go through this example of the six dragons, which are all coming out of this area called Guangzhou.

53:33and grace if you could tell us a little bit about what's happening there and what these six dragons are that would be great yeah i think to first to understand is hangzhou is considered a second tier city for again china standards but the population is like nine million people or something like that it's nowhere like the biggest city in the u.s just fyi it's not a small city So in that sense, it's quite well known in China. And I think, oh, sorry, it has actually nearly 12 million people, including its suburban area. So yeah, it's not a small city. It would be 150 % the biggest city in the US.

54:12Okay, no big deal. So in that sense, Hangzhou is, it's quite fascinating. So I want to start in a cultural context. Hangzhou is a really, really, really pretty city, actually. It's named the paradise on earth, city of silk. It has a west lake. So in historical times, Hangzhou, the whole area, is kind of where the scholars used to kind of come together. You know, they would like admire the beauty of like nature and write poetry. And you know, it's also known as where like the prettiest girls came from. And so it's really kind of well documented in Chinese traditional history. Modern days, why is it relevant?

54:52Well, it actually is the home to Alibaba, as you mentioned, home to Jili, you know, the conglomerate of Cargolommer that also owns a lot of the EV brands like like Zeker um it is also home to NetEase the massive gaming platform so itself is like actually like a home to like some of the biggest public listed companies in China okay and then on top of that it's been traditionally a manufacturing hub because I think the um the proximity to Alibaba and obviously then and the rampant and vibrant e-commerce space, we have a lot of home businesses around the whole area where they're the manufacturers of the clothing, the textile, the toys, and whatnot that you know of, okay?

55:36Even near the fake bag places and the toy factories and all those things. So it's a really vibrant economy. Now, a couple now on top of that is I think a really special thing I was kind of thinking about at that day is it's about a two-hour drive from Shanghai. so meaning it has access to international talent capital um the you know the most vibrant culture and like art art scene in China and then it's kind of far from Beijing it's like a three-hour flight two three-hour flight so you're kind of away from the regulations you know like Beijing is in Shanghai are very different vibe like think about New York and DC right you go to DC people dressed in suits and and it's different vibe right people are a lot more serious you go on New York streets everyone's wild right they're in their own world and kind of like shanghai and beijing is a bit like that okay right like i i remember when i first moved from new york to singapore i was like oh my god where are the crazies i don't see anyone crazy anymore but i miss that energy but my point is um i think if you think about that hangzhou is so strategically located to actually help entrepreneurs flourish especially smaller businesses so it's not as expensive shanghai beijing it's not as regulated and it still has all the talent because of the all the big companies that's been there.

56:52It's brought in this whole ecosystem of people that they can people lean on. So now because of that, local government is also very, very pro-businesses. And they've really pushed out a lot of policies to incentivize AI development. You've really seen a lot of AI companies really flourish there. To start off with DeepSeek himself, right? Like DeepSeek itself is actually from Hangzhou. And Unitree, what I just mentioned, the leading robotics company, also based in Hangzhou. And it's really interesting, actually, out of the six small dragons three of the ceos were educated at zhejiang university which again i just mentioned is a very very strong that has a very very strong stem education um so this whole ecosystem has really served it well um and now beyond unitary deep sea there's a company called game science many many core which just went public in hong kong and brain co and deep robotics so they each kind of work in different realms of AI but supporting the whole layer like the whole full stack and infrastructure in the ecosystem of the AI development and I don't think we need to go into details of each of them but I just think it's really interesting that people are kind of overlooking this whole area of development and I think 10 years ago if you ask where is China's startup hub it would have been Shenzhen which I mentioned was like the hub with the headquarter of Tencent, DJI, SenseTime.

58:14Now it's actually up there in Hangzhou. And it's really interesting because that hustle culture, entrepreneur culture also really feeds into each other. And I think it's making it more and more vibrant. Yeah, I looked at a photo of it as you were talking and will confirm to our audience, it is beautiful. So it's a very pretty city. Yeah. My next trip to China, I think we have to add it for sure. All right, we're running out of time. Oh, go ahead. Oh, it's actually also the famous tea plantation. So if you ever see China's like tea plantation pictures, it's out in Hangzhou suburbs. Okay. All right.

58:46So definitely adding it to the list. We are running out of time, but I don't want to leave here without getting your perspective on Manus, which is this AI agent that has sort of taken, I don't know, taken the world by star. Maybe that's a little bit too strong. but it is another agent outside of China or coming out of China that people are paying attention to. Some people said, is this the next DeepSeek? Do you think, is China all about the AI agents now speaking of putting the stuff into products? And what did you think about Manus? So full disclosure, I haven't actually tried it. So it's all second hand information.

59:25It's like the most exclusive product. there's like you know one percent of people being let out and i think invites to manis are going for a thousand dollars on the black market so yeah it's crazy okay we were paying like 10 000 usd for this right now apparently whoa all right even my like a lot of my like media friends and tech friends out like based in mainland they're not being they're not able to access so it's a bit secretive so i don't have a really strong take on it because i don't think it's a deep seek moment for China because I think it did not fundamentally change how we believe AI is being developed, right?

1:00:02Like in the sense that Deepsea completely challenged the scaling law and what we believed in more capital is better training, better model, you get better AI, like this kind of mentality. I don't think Madness has disrupted anything we already believe in, which is AI will one day become like an assistant or extension of our capabilities. And I think if you've used like OpenAI's operator, et cetera, like it's not that different. And frankly, what I've heard from people that have tried it, it's so glitchier than a demo. I think it's an interesting thing because it does show that means if like, you know, inference becomes cheaper and usage of AI becomes cheaper, more and more smaller businesses, It's like people with less money can actually jump into this game and compete and innovate on top.

1:00:54We talked about innovating the product and application layer. But does it really change fundamentally how we believe AI is developing? I think it just actually reinforces what we've been talking about. The mainstream narrative, which is AI is going to take over junior staff jobs. Essentially that way, right? Or a lot of administrative work. And that's really scary. And so how do we train our next generation of young talent to be AI native, right? That's something where the conversation might lead to. But yeah, I don't think it's a deep seat moment. But again, I've never tried it myself. So maybe I'm wrong.

1:01:28Maybe this thing is just like crazy. Okay. Last thing that's been coming up as we've been talking. People, we haven't really talked about the export controls and the shortages of GPUs within China. And, you know, we could get into the advisability of the policy, but I think that'll be for a different show. So to me, the question is something like Manus, right? We just talked about it, 1 % off the wait list. It's probably compute heavy. Something like DeepSeek, right? They had to cut off access, I think, to either access to the API or access to the product because there was such high demand. So I'm curious from your perspective, can Chinese companies really become global forces if they're going to be limited by effectively, I guess, the chip shortages?

1:02:13Everybody has the chip shortages, but I think they have them more acutely. And that might limit people's ability to effectively use the products. So what do you think about that? It's definitely not going to be easy. And with DeepSeat rolled out, everyone's using it. I don't know if you tried it, but the server would always say it was busy. Essentially, the server couldn't actually serve the amount of interest coming in. So I think it's not easy. And DeepSeat trained on the H800s, right? So that was designed to circumvent the chip bans in 2022, I believe. So all of these things, basically, we can say it forced DeepSea to innovate beyond using the best top tier kind of newest chips.

1:02:57But right now, it's definitely also hindering Chinese AI development. For sure, that's probably its biggest bottleneck because we talked about it. It has innovation. It has data. It has energy. It doesn't have chips. So unless domestically, you know, we see like Huawei or Baba or any of the other chip players really make a breakthrough, this is going to be their biggest hindrance, I think, for sure. All right, Grace. Look, it's late my time. It's early your time. I was like, am I going to be able to stay up for this interview? Folks, we're pushing past 10 p.m. now. I have not felt tired for a moment.

1:03:37This has been fascinating. Thank you so much for coming on and sharing all this fascinating perspective on AI in China. Can't thank you enough, Grace. For sure. Thank you so much, Alex. And thank you for staying up late for this. Thank you for starting your day with this as well. I know, yeah, beginning of the day with a podcast is not always the easiest. So thank you for that. The Substack would be remiss if we can call it out one more time. It's AI Pro-M on Substack, A-I-P-R-O-E-M.substack.com. many of the stories that Grace talked about today are on her sub stack. So do encourage you to go check it out.

1:04:15Thank you, Grace. Thank you everybody for listening. And we'll see you next time on Big Technology Podcast.