US Versus China, Cheap AI & Human Love: AI Pioneer Kai-Fu Lee

0:01In a world that never stands still, we're there to help you act with conviction. At HSBC, we connect the people, ideas, and capital to unlock growth, backing your ambitions at every stage. So when you're planning for the next generation, strengthening your portfolio, or expanding into new markets, we're there, bringing over 160 years of experience to help you move forward. HSBC. Opening up a world of opportunity.

0:30Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans.

1:13Never bet against American grit or American energy. Through innovation, Venture Global is not only building some of the largest energy facilities in the world right here in the United States, but delivering American energy at a fraction of the cost and a fraction of the time. So while others are busy talking, we're busy building. That's Venture Global. That's unstoppable energy.

1:47Podcasts, radio, news. I think our whole society needs to rethink how much we depend on jobs. The job displacement is coming. That if you ask someone, tell me about yourself, they pretty much tell you about their job. It's extremely dangerous. As we look at jobs being turned upside down by AI, we really need to reinstill in people that job isn't everything. There's more to it than that in life. Kai-Fu Lee, who's played a central role in the tech boom in the US and China for 40 years. In the long run, do you think the Chinese companies will be the ones which are more likely to make a profit? No, I do not.

2:35Anthropic and OpenAI have built the iPhone. The Chinese companies are more like Android. The iPhone makes by far the most money, but Android has the larger market share. From Bloomberg Weekend, this is The Michelle Hussain Show. I'm Michelle Hussain.

2:59From the very early days of this podcast on making sense of the world, AI has often been part of the conversation. We have wanted to understand its ever-expanding impact. And so I have talked to pioneers and evangelists like Mustafa Suleiman, as well as realists and critics like Meredith Whitaker and Karen Howe. It's a field dominated by immense American companies, the giants behind ChatGPT, Claude, Gemini and others. But this week, we really wanted to dig into what's coming out of China, the AI-embedded products, devices, and apps that are already serving a huge population that are popular in many other countries and potentially winning a global AI race.

3:54These advances are especially notable because the United States has for some years been restricting Chinese access to the most advanced chips, the components that essentially make AI possible. Who can really explain this landscape, we thought? And the person we turn to is himself an AI pioneer. Kai-Fu Lee was born in Taiwan, but at the age of 11, his parents sent him to live in the United States. He learned English at school in Tennessee. And in the 1980s, he was doing his PhD on how computers could recognize speech. From there, he went to work for Apple, then Microsoft, then Google, which poached him with a multi-million dollar pay deal that showed his value to them back in 2005.

4:45He was at the forefront of American tech going into China, and Beijing is where he lives today. He's invested in dozens of tech startups, which means there are a number of Chinese billionaires who owe their fortunes to him. And today he has his own AI firm, 01.ai. So Kai-Fu Lee has seen a lot. And as a tech CEO, he remains part of a landscape which will further change our lives. I think he is able to connect the transformative power of technology to our lives in a pretty unique way. He has a new book coming out called AI Native, the mandate to transform your company. But really, he thinks and talks about our changing world in the broadest sense.

5:37Here's how our conversation began. Hello, Dr. Kaifu Lee, can you hear me? Hi, Michelle, yes. Thank you very much for taking the time. Have we kept you later than usual in your office in Beijing to talk to us? No, no. You know we're at 996, right? 9.96? 9 a.m. to 9 p.m., six days a week. Oh, wow. Okay, you still work like that? Actually, I do not, but that's the way people talk about working in China. Okay, I see. Let me set the scene broadly for you about why we wanted to turn to you and to hear your perspective right now. It's because there are so many headlines and news of developments in AI in the US and China.

6:26You know both these countries. You have seen, in fact, the entire trajectory of the development of this technology over 40 years. So let me just start by asking you this. What do you think today is still underappreciated about the power of AI? I think there are two things. One is the speed of improvement and the reduction of costs. most people do not realize that AI is solving tasks 10 times longer than it was one year ago. So if AI solved a four-minute task a year ago, now it can solve a 40-minute task. Okay, so it's getting better and better at longer, more complex tasks. Right, right. And if you want to look at it with a skeptical view, it is displacing 10 times more human work potentially.

7:24So the acceleration of the much faster intelligence is going to drive adoption like no technology ever has before. So much more than the steam engine, so much more than the internet, so much more than Moore's law. The second is a consequence of AI improving that fast means that the fabric of our companies, enterprises, society, government, will need to consider the drastic changes that will bring about. And in my view, the CEO is currently one of the least aware of how important and transformative this AI technology is because the companies affects everything, right? We all have jobs and the jobs are going to change.

8:18In five years, the typical successful company's organizational chart will be quite different from today. The people who occupy the most important places, their qualifications will look quite different than today because AI workers are becoming better and cheaper, faster at a pace that people cannot fathom. And in order to make that work effectively in an organization, it cannot be retrofitted into an organization with the hierarchy intended to manage people. AI workers don't need hierarchies. All the information is connected. What they need is people who will know how to design the right problem to solve, organize AI to solve it.

9:09And also, very importantly, willing to be accountable if anything goes wrong, because AI can't be accountable. So what are the qualifications then that would put people in these positions? What are you advocating in terms of what people study in order to make the most of this revolution? I suggest they study one thing, which is how to solve hard problems and come up with new problems, work with AI to solve them, and to command armies of AI to massively parallel solve complex problems. But this is not coding. This does not require any engineering background. A humanities student can easily do this.

9:59This does require willingness to work on complex problems, ability to fuse multiple sources of information. So these are kind of the hard requirements. They can be learned, even for an older, non-tech background person. That's the good thing. Good to know. What's more important is what kind of a person when is. And if that doesn't match, then no chance. And this position has been called by Steve Jobs and Jack Dorsey as the DRI, directly responsible individual. And the soft traits are more important than the hard traits. The soft traits include singular responsibility. That means anything goes wrong, the buck stops here.

10:49Second is a willingness to do whatever it takes to accomplish something with the tenacity and ownership of a project. And the third is ability to work with other people and processes. Can I put a real world example to you? Our team right here, we are a small team who work together to produce this podcast. Myself, an executive producer, a handful of other producers, video editors working on different aspects of this. I would hate to think of a future where it's me and essentially a version of an AI team, that I might be the directory responsible individual and everyone else around me is an AI colleague.

11:36I hope that's not the future that you're trying to prepare me for. I am not saying the group is one person and all AI. It's as many people as is needed to ensure that the people connection part is worked out. I don't know enough about your business, so I'm using my business as an example. So maybe a unit of 20 people and 100 AI to begin with. then over time, if the business is flat, then probably fewer people and more AI. If the business is growing, there may be more people and more AI. So I'm not saying there will be no people left. There are some tasks. You mentioned video editing. So if I want to set up a one-person company that automatically edits videos, I actually know a company like this.

12:31It's a one-person company. They make videos for handymen and gardeners in the U.S. And basically, the handymen and gardeners submit their pictures and videos. And AI chops them up, puts music and background, and then promotes them on TikTok, Instagram, and gets them referrals of deals. And it also promotes their own service to the communities of handymen and gardeners. So this would have been a team of probably 20 people, but now it's one person. I mean, the implications of that are obvious, aren't they? And I don't just mean in this field, in so many other fields. Look at the protests that have just happened in India, where so many young people, their frustrations, I mean, they were partly about the exam process, but there were also more general frustrations that the kind of entry-level jobs they would have had in the past in places like call centers and others aren't there anymore.

13:35So there are very serious social implications, unless you're saying there will be enough jobs just in other fields for all of those people. Well, I think there will be jobs in certain new industries. And I think our whole society needs to rethink how much we depend on jobs, because AI will generate a lot of wealth. And I think we can find ways of redistribution so people can work fewer hours and be paid for activities that were not economically important. But I think this is all very hard to communicate to someone who couldn't find a job or lost his or her job. So this has been something I've talked about since my first AI book in 2018.

14:21The job displacement is coming. Let's start the training, the preparation. And now I think it's just recently, rapidly risen to very high levels. Another thing on my mind that I'd love to get your insight on is what is going on at American tech and particularly AI companies and Chinese ones. And you're uniquely placed to tell us about both those worlds because you've moved within them. You worked for Apple, Microsoft and Google. And for Microsoft and Google, you were at the forefront of their foundations in China. Let's take companies like OpenAI and Anthropic. How much of a challenge do Chinese versions like DeepSeek and Moonshot represent to them?

15:06I think they represent a significant challenge, especially if they continue to keep up at the recent levels. because OpenAI and Anthropic always stayed number one or two by most metrics in the AI quality. But their models are closed and not open source. The Chinese models have been largely open source. The models trailing them trail anywhere between three and 15 months. Right now, it's probably six months behind because everyone's pushing on new models. So what this means is if you were open AR or Anthropic, you would have a product you sell for a very high price that is deeply discounted with an open source version that is equivalent to your best model six months ago.

16:05So it's like, would you pay$50 ,000 for a Tesla of this year or$15 ,000 Tesla that's six months old? Obviously, the second is a strong value proposition. So in the long run, do you think the Chinese companies will be the ones which are more likely to make a profit? No, no, I do not. I think the American companies will make more money. So Anthropic and OpenAI have built the iPhone. The Chinese companies are more like the way Google felt. It's like, okay, you got the best product. We'll build something that's almost as good and sell it very cheaply. In this case, very, very low cost, sometimes near zero, and just win a larger share.

16:53And the rest may come later or may not. But for now, let's get market share. So like Android, the open source models will have more share, more footprint, more usage. But people will pay very little. In some cases, they just copy the model and they pay for the servers on which it's run, but they don't actually pay the Chinese companies anything. And that's being sacrificed to gain share. whereas the Anthropic and OpenAI, they have the American enterprise system selling enterprise software products that are very highly priced and large companies are getting good value. So they pay a lot of money for the software.

17:31So iPhone makes by far the most money, but Android has the larger market share. That is a really useful analogy, I think. And obviously, I'm thinking about all those countries in the world where iPhones are unaffordable and people are using Android phones. Do you think then that the DeepSeek and the Moonshot models like Kimi, for example, which Moonshot recently brought out, in most of the world, in developing countries, these will be AI to people, that China will win that global race, if you like? I think that's a likely outcome. It presumes a few things. One is that Chinese companies continue to trail not too far.

18:17It's possible because of the talent depth in the Silicon Valley companies that some company comes out with something that takes much longer to match, let's say two years, three years, in which case that may not hold. The second really is who's going to build the apps for the people in these developing countries. So there's not a lot of money to be made in these countries. And the Chinese model companies already don't make much money on what they sell. So who's going to build that nice interface that OpenAI and other companies have done and cater to the languages for all of these developing countries.

19:00So we'll have to see how that plays out. Right now, there's not enough carrier for the Chinese products to conquer the consumers of developing countries. How has Chinese advance in AI been possible to this extent, given that the U.S. for several years now, from the time of President Biden, has restricted access to the most powerful semiconductors? I think that set of expert control undervalued the Chinese companies and their engineers' tenacity and willingness to do whatever it takes to get things to work, despite a lack of resources. and so DeepSeek probably had one to three percent of the GPU power of the top American rivals and they were able to produce almost comparable results and that's through the kind of dirty work if people can imagine the dirty work right the dirty work it takes to you know fix your car polish your car and things like that.

20:14So the Chinese people basically view it as a challenge and they'll work hard on things that are not glorious, not interesting, but gets the job done. So it's maybe 10 times more engineering work to deliver that exceptional result. So I think that That was an underestimation. And the other really is that I think the speed at which the Chinese companies learned the technology also went through a very fast, accelerating pace. I think for the moment ChatGPT came out, I would argue U.S. was three to four years ahead of China. And I think today we're talking six months. So the speed at which the gap narrowed in technology and the degree to which hardworking engineering overcame the hardware deficiency, I think those were surprises to the policymakers.

21:20So it's an underestimation of human ingenuity and capacity for hard work, I guess. I'm also curious about the fact that the Chinese models tend to be open source and that other companies can take them, develop them, modify them, do their own products, because that does allow your competitors to come in and do a better version of your product. So why have the Chinese companies gone down that open source route rather than make them closed source like OpenAI, Anthropic, who obviously don't want to give away the tech that they've spent money developing? I think it's because they don't think they're more likely to win that.

22:02I mean, every company makes a choice that's more likely to have a successful outcome. So the Chinese companies are kind of like a study group. So if the Silicon Valley companies are like a genius who feels destined to win Nobel Prize one day, The Chinese companies are, each one is a very good student, but not so good they feel they're destined for Nobel Prize. So they better figure out some way not to be kept way behind by the genius kids. So they've decided to form a study group. They don't physically really sit down and study together. But because they write papers, they open models, and people move from company to company.

22:49So I would say the Chinese companies have moved somewhat in tandem. They're quite aware of each other's innovations. You'll see DeepSeek reference Kimi and vice versa. So while the American companies have stopped publishing, the Chinese companies continue to publish. So the study group is conducted in a fishbowl for the world to see. It's interesting. I'm wondering if there is a, therefore, a cultural basis and something that partly comes from maybe the education systems that leads to these two approaches. And of course, you moved from the Taiwanese school system to the American school system at the age of 11.

23:30Because I think your brother told your parents it would be better for you? Yeah, yeah, that's right. Exactly right. Because at the time, the American system certainly is the best education system for middle school in the world. And I was lucky to have had the chance to study in the U.S. What was it like coming at the age of 11? Because it wasn't like you were emigrating with your parents. Your mother stayed with you for a bit, but then she went back to Taiwan. Right. I stayed with my brother and sister-in-law, and they were scientists in a U.S. national laboratory. And it was an eye-opening experience.

24:13I think that Asian schools tend to train everybody in a good student direction. And then the U.S. schools let people be what they independently want to be or should be. That's probably the primary difference. So if you had stayed in Taiwan and been a product of that system, what do you think your life would have been? I probably would have been a good student and a good employee at some company. I may still be quite successful or not. I don't know. But I think my chances increase as I go to the U.S. because I have the discipline and tenacity that the Asian system, the Chinese system taught me.

25:00And I have the free thinking and free will and the confidence that the American system taught me.

25:31So when you're planning for the next generation, strengthening your portfolio, or expanding into new markets, we're there, bringing over 160 years of experience to help you move forward. HSBC, opening up a world of opportunity.

26:00take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at chatgpt.com by selecting work mode. available on Plus and Pro Plans. With LPL Financial, we provide the services to help push you forward. When it comes to your finances, your business, your future, the only question should be, what if you could?

26:42Pitt advertisement, Anna Kendrick is not a client of LPL Financial LLC and receives compensation to promote LPL. Investing involves risk, including potential loss of principal LPL Financial LLC member, FINRA, SIPC.

26:59When you wrote this book, AI Superpowers, China, Silicon Valley, and the New World Order, when it came out in 2018, I felt that there was almost something resembling a crisis in your life that you were writing about towards the end of the book. Your mother developed dementia, you yourself had cancer. And it was like a moment where you had to think about some of your choices. You said, going to visit your mother, how had I been raised by such an emotionally generous woman and yet lived my life so focused on myself? I'd love to know more about that period in your life and what it taught you. Yes.

27:39I have been a workaholic my whole life. And during the years of 2009 when I started my companies through the time I got cancer, which is several years after that, my hardest working moments. I've always believed that my work is my everything, that it was by far the highest priority. Family is something I have. I'll give them some time, but always work is higher priority. And I think during my illness, I realized two things. One is that when I felt ill, it was my family that really did whatever it took to with basically unconditional love for me, taking care of me. And despite my spending minimal time with them.

28:35So obviously that's something that I feel like I need to rethink my priorities. That life can't just be my job. And the second thing is that I've always wanted to make the biggest difference I can in the world. And I had an encounter with a very wise Buddhist monk in Taiwan. And he said, it's very dangerous to always want to change the world. Because you will use that as an excuse to do things that are for your own self-promotion of yourself, your company. because you will explain to yourself that it changes the world. So these two things really woke me up in a number of ways. I think one is that after my cancer went into remission, I was able to rebalance my life, devote more time to my family.

29:32I'm still very busy, but I think the priorities are not strictly work. And when I spend time with my family, I try to make sure it's a meaningful quality time. And then when they really need something, I would make that the highest priority. But the other change really is related to AI is it made me aware that many people around me were like me, that job is everything. That if you ask someone, tell me about yourself, they pretty much tell you about their job. And in this kind of a belief, it's extremely dangerous as we look at jobs being turned upside down by AI. We really need to reinstill in people that job isn't everything.

30:17There's more to it than that in life. Yeah, but it isn't the world that you're helping to explain today, how AI applies to companies in particular, doesn't it actually increase the risk of that, that people know how much AI is changing the workplace and that it can instill a kind of Hunger Games type competition? so that you are the one who emerges when others might fall by the wayside? I think in the book, I was quite clear to talk about what kind of employees a CEO needs to develop and train, not just to hire and replace. And also, I make a plea to the CEOs that this should not be a very fast process to turn the company upside down.