Digital economy

New cyber frontier

China’s digital economy becomes a global force as it gains an edge in AI and the Internet of Things

P1 digi

December 11-17, 2017
By DAVID HO
in Hong Kong
For China Daily Asia Weekly

China is ready to welcome collaborations on the cyber frontier, said officials and experts gathered last week for the largest Internet-focused conference in China.

And the economic benefits could be enormous. By 2021, as much as 55 percent of China’s GDP will come from the digital economy, according to research firm IDC China. Last year the country’s digital economy accounted for about 30 percent of GDP, roughly $3.4 trillion.

“Building a community of common future in cyberspace has increasingly become the widespread common understanding of international society,” President Xi Jinping said in a congratulatory letter to the 4th World Internet Conference held in Wuzhen, East China’s Zhejiang province, from Dec 3 to 5. “China’s door to the world will never close, but will only open wider.”

Much of the focus going forward will be on the growing importance and adoption of technologies related to artificial intelligence (AI) and the Internet of Things (IoT), both in China and around the world.

Two reports released at the annual conference — the China Internet Development Report 2017 and World Internet Development Report 2017 — explained the current state and development plans for the Internet in China as well as cyber development trends in other countries.

IDC estimates that by 2019, around 40 percent of the world’s digital transformation initiatives will employ AI. This could mean that by 2021, more than 90 percent of consumers will be interacting with customer support robots for services.

Andrew Shepherd, London-based senior energy and infrastructure analyst for BMI Research, told China Daily Asia Weekly that Chinese firms are working to establish a competitive advantage in areas like AI.

“In May 2017, the Chinese government released guidelines for its Made In China 2025 strategy, which is designed to help the country focus on innovation-based manufacturing and establish a higher value-added economy,” said Shepherd.

“The strategy is ambitious and aligns with China’s efforts to utilize AI, IoT and advanced robotics to move up the manufacturing value chain and compete directly with high-tech manufacturing economies like Germany.”

A robot provides information for visitors at a hospital in Beijing on Nov 22. Companies are using artificial intelligence systems to further customer engagement, increase competitiveness and expand into new markets. (IMAGINECHINA)

One way for Chinese companies to speed up progress is through more acquisitions abroad, as Chinese appliance maker Midea did last year when it purchased German robotics company Kuka.

“We could see similar such purchases in areas like AI and IoT over the coming years,” Shepherd predicted.

AI and IoT have been adopted quickly because they could help corporations become more competitive and expand into new markets, Kevin Angelini, head of strategy for insurance consulting and technology in Asia Pacific at global advisory firm Willis Towers Watson, told China Daily Asia Weekly.

“AI can be used to further customer engagement, by increasing frequency of contact and making it more relevant to the customer,” Angelini said.

Christopher Thomas, a partner in the Beijing office of consultancy McKinsey & Company, echoed that sentiment in an interview with China Daily Asia Weekly.

“There’s a lot of buzz in the B2B (business to business) market surrounding AI. It gives companies the ability to respond to needs, even before the customers request it, by helping to identify them through data patterns,” Thomas said.

Baidu is one firm that has made great progress through its AI-powered DuerOS. Since the operating system’s launch in July, some 130 companies around the world have adopted it.

The tech company has big plans for the system, which is only available in Chinese for now. However, Baidu’s acquisition of chatbot software company Kitt.ai could help it reach an English-speaking crowd. Baidu has not been shy in declaring its ambitions for DuerOS.

Angelini said AI systems can assist with cost cutting and automation of processes.

“In the insurance sector for example, it is now used to process claims, train agents, and assist with the onboarding of customers,” Angelini said. “With employees juggling two or three things at one time, AI can be used as a tool to aggregate and harmonize the data from separate projects and people.”

China’s IoT industry was worth more than 900 billion yuan ($136 billion) last year. It is expected to exceed 1.5 trillion yuan by 2020.

McKinsey estimates that the total market for AI applications will reach $127 billion by 2025.

Another development trend on the rise is the growing adoption of IoT, which refers to connectivity between appliances that allows for control and exchange of data between devices.

“Two-way connectivity with IoT means that these ‘things’ can interact or intervene with their environments either directly or remotely. Timely interventions, diminished need for manpower and greater accuracy mean that the cost benefits will appeal to almost every business and social sector. So much so, that perhaps the Internet of Everything would be a more appropriate label,” said Shepherd from BMI Research.

Far from being a new fad, IoT networks already support a wide range of applications in areas such as healthcare through real-time biometrics and outpatient care; heavy industries with 3D printing or in mining and construction; transaction reporting in car parks and toll collections; and low-value, high-frequency applications such as load-management sensors in energy networks.

Chinese electronics maker Xiaomi claims it already has more than 85 million devices connected through IoT, ranging from smartphones and computers to a wide range of household products.

China’s IoT industry was worth more than 900 billion yuan ($136 billion) last year. The China Annual IoT Development Report (2016-2017), published by the China Economic Information Service, expects it to exceed 1.5 trillion yuan by 2020.

“Although expectations of the transformative impact of IoT on industry over the next five years are overblown, the longer-term potential is still underappreciated,” said Shepherd.

IoT devices are increasingly being applied in urban planning and smart cities, such as the New Manila Bay project, a smart city in the Philippine capital planned by Hong Kong-based Ho & Partners Architects (hpa).

Nicholas Ho, deputy managing director at hpa, is adamant that smart cities will draw from “an optimization of ICT and IoT in their design”.

“Smart mobility means integrating technology into urbanization, such as using various ICT (information and communications technology) and IoT advances to monitor traffic in real time and feeding it back to users,” he told China Daily Asia Weekly.

“That could translate to being able to check traffic conditions on specific streets online or finding out the location of a free spot in a car park through apps.”

Chinese companies now aim to combine the best of AI and IoT. Xiaomi and Baidu recently announced a partnership to work on advanced consumer electronics products powered by AI and connected via IoT.

As IoT technology improves and AI provides better predictions, companies, governments and people are likely to step up their use.

Shortage of talent in both AI and IoT is a pressing issue. Eric Byron, chief strategy officer for Accelerate HK, sees a great need by companies across industries for such human resources.

“AI, in particular, has gotten a lot of industries excited as it can be applied to anything from gaming, medtech, education, fintech and logistics. But the greatest challenge we see across the board, from fintech to blockchain, is a shortage of competent talent,” Byron said. Blockchain is the distributed ledger technology behind cryptocurrencies like bitcoin.

Accelerate is a socially aligned enterprise that helps those seeking an upgrade to their tech skills. The Hong Kong-based company offers tech and data science courses for zero tuition fees until graduates land employment. Byron views his investment in that area as creating a “necessary community”.

“One of the obstacles causing that shortage is a lack of accessible training, which can be lengthy, expensive, and does not guarantee employment despite the high need,” said Byron, who sees his 16-week boot camps as a solution to the talent gap.

The other manpower issue related to adopting tech advancements is the loss of jobs.

“While robotics and IoT have already started replacing blue-collar workers, the expansion of AI in particular has the potential to replace a number of white-collar jobs. Lawyers, traders, insurance workers are all potentially at risk over the coming years,” said Shepherd.

This can cause governments to be hesitant in adopting such advances. Ho from hpa looks to his home turf where he estimates the adoption of ICT over manpower could displace a large portion of Hong Kong’s 60,000-strong administrative system.

Ho said working closely with the authorities is a solution. “We need to create a smart framework,” he said.

“We spend a lot of time lobbying governments to adopt technological advances. Though those at the top tier of government are eager for change, they also have a lot to consider and find ways for incremental, rather than disruptive, applications of such technology.”

Another possible bump in the digital road is the issue of data accessibility.

“Opening up data to more people would enable more innovation, entrepreneurship and competition that would be vital in unlocking the potential of AI and IoT,” said McKinsey’s Thomas. “However, it brings up many tricky issues concerning confidentiality, security and privacy and ownership of data.”

He suggested that working on the legal structure would be the first step toward overcoming that multifaceted obstacle.

Security is another risk factor. Eugene Kaspersky, chairman and CEO of Moscow-based cybersecurity group Kaspersky Lab, told attendees at the World Internet Conference that cyberattacks are on the rise and IoT devices will be a growing target for cybercriminals.

Kaspersky said that new malicious applications this year alone will exceed 90 million. He added that is quite a leap from the mere 500 identified in 1997.

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Shepherd, from BMI Research, cautioned: “The deployment of IoT solutions gives cybercriminals more points of access to exploit. The proliferation of connected devices, rising volumes of data and growing number of IoT players make cyberattacks significantly more complex and difficult to prevent.”

As IoT technology improves and AI provides better predictions, companies, governments and people are likely to step up their use, particularly as AI-processed data makes it easier to spot patterns and make decisions.

“If we look at games, AI intelligence allows us to see how people are playing and allows developers to tune the game. It gives content providers the chance to scale up, provide more dynamic material, and basically evolve,” said Byron from Accelerate HK. This helps developers to keep content relevant and stay one step ahead of consumer needs.

Byron also gave an example of computer advancements being used in the healthcare sector to scan MRI reports and offer diagnoses. Based on that, a professional could then offer treatment.

Byron believes there will always be a human element involved in decision-making, but Thomas predicts that advancements will eventually allow AI to make decisions on its own.

“At the moment, AI is still used primarily for monitoring purposes. Intervention is still on the human side. But with AI, the rules are predetermined. With the correct algorithms, we can depend on machines to make faster and more flexible decisions,” said Thomas.

“The short-term effects are sometimes overstated, while we should be focusing on the long-term outcomes,” said Thomas. He sees great potential in decision-making AI for autonomous vehicles in particular, which will require AI calling the shots on the road.

Apple CEO Tim Cook, in his Dec 3 speech at the Wuzhen conference, said: “Much has been said of the potential downsides of AI, but I don’t worry about machines thinking like humans. I worry about people thinking like machines. We all have to work to infuse technology with humanity, with our values.”

China’s AI and IoT are already being adopted outside China, said Thomas. The call at the World Internet Conference for collaboration could speed up this process.

“China is already a part of the global network and the global ecosystem. Chinese leaders in their fields are globally respected. When innovations in tech happen, we don’t look at where it comes from, rather where it could take us,” said Thomas.

He said Chinese consumers are currently ahead of the curve with adopting tech trends. In fact, it is the industries that need to play catch-up with them.

“The one thing we should remember is, at the end of the day, we in the scientific and technology community are all part of the same global network and the same global lab.”

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