March 2024
Want to stay ahead on China news in business, technology, innovation and new trends every month? Subscribe to ‘This Month in China' newsletter to get it mailed to your inbox.
HOW CHINA MADE A DIFFERENCE THIS MONTH:
“CHINA’S NEXT MIRACLE”
?In September 2023, Xi Jinping put forward a new concept where he called for “new quality productive forces”, which has since become a key phrase in China's political lexicon. For many observers, such phrases feel more like CPC propaganda aimed at all Chinese subjects.
Could this really become China’s next miracle drug?
Beijing seems to think so. These five characters (新质生产力) or “new quality productive forces” are hyped up as the spark for China’s innovation train to add new steam, even more speed and a clear direction. But what does it all mean? Is this more than just repackaging the Made-in-China 2025 plan to serve as “the emperor’s new clothes”?
Let’s quickly revisit the Made-in-China 2025 plan. In 2015, Beijing incentivised Chinese firms under this 10-year plan to become the leader in global innovation in 10 industries from high-speed trains to electrical vehicles. China was to match-up to Germany’s industrial level.
Few believed back then that China would be able to grow from unheard-of brands to industry champions in only 10 years. After all, American and European corporations took often 100 years to get there. They laughed the plan away saying true inventions cannot be planned by a central government.
?In hindsight, the Western world underestimated Beijing’ elaborate industrial strategies for China to become a global leader in high-end and quality manufacturing. Western firms and their leaders also overestimated their own capabilities, uniqueness, tech gap and brand value.
?Around 2018, China’s transformation from low-end capacity-driven production to high-end smart manufacturing became more visible. This intensified the tensions between Beijing and Washington. In 2019, the CPC consequently buried the Made-in-China 2025 slogan. But that was merely cosmetics, because all industrial policies remained continued.
In 2018 I wrote my first book ‘China’s New Normal’ about 10 industries where China would set the standard for innovation by 2025. Looking back now, I did a pretty good job. Today, I have a very similar feeling about the next 10 years for China to become a true global leader in industrial productivity from inventions to servicing. Maybe it’s time for a new book?
?The Made-in-China 2025 plan was designed for China to avoid the “middle-income trap” that stagnates growth as wages rise. Over the past decade, China’s GDP growth has slowed down from 7% to 5% today, and wages have doubled. The plan worked, but China is not out of the woods just yet. Quite the opposite.
?China now needs to find new engines of growth beyond real-estate and infrastructure. At the same time Beijing has to deal with new problems from geopolitical risks, poor consumption and investment climate to a demographic decline. The answer to build further on Made-in-China 2025 plan and create China’s next miracle is called “New Quality Productive Forces”.
?But again, it is not taken serious by China observers, now even some from inside China. One reason is that many come to the same conclusion as in 2015: China cannot buy its way out of trouble. But now it is less about a disbelief in Beijing to be able to stimulate innovation, but about a disbelief in Beijing to resolve its economic and social problems with innovation only.
?That belief is being reinforced because the concept of “new quantity productive forces” is based on the integration of innovation with a Marxist productivity theory. There is even a new theoretical formula for it:
New productivity = (revolutionary breakthroughs in science and technology + innovative allocation of production factors + industrial transformation and upgrading) x (optimised combination of [labor force + labor tools + labor objects]).
I think this is genius. The slogan and formula are so vague, complex and based on Marxist ideology that no journalist, economist or liberal politician will take it seriously. It will stay under the radar! But do notice that the formula includes a multiplier instead of an addition. China needs a multiplier to deal with its economic headwinds.
?My interpretation of this dull formula is: China intends to multiply its output productivity by making more people smarter and better equipped to enhance scientific breakthroughs and innovation that can be integrated into real-world applications, industries and the defence.
If we subtract the Marxist ideology that often clouds our judgement, Beijing is doubling down on three things:
It is a similar transformation America did last century which made it the default global leader. For America, resources such as oil and immigration policies were its catalysts, while for China their resource is data and a few billion brains from China and its new friends in the Global South. This is why I believe “New Quality Productive Forces” could become China’s Next Miracle.
It’s an old Western productivity model combined with Chinese strategic policy efficiency.
?This all sounds fantastic in theory, but will it make a difference? To answer that, we can best take a look at the industries that China is targeting for this transformation. Here we have two tiers: ‘strategic emerging industries’ until 2030, and ‘future industries’ going beyond 2030.
?In the first category we pretty much find the same 10 industries as in the made in China 2025 plan. China wants to become more self-reliant in these sectors first, and have them act as the new drivers of China’s future growth. Today, the ‘new three’ is a buzzword in Beijing as case point: electrical vehicles, lithium batteries and solar cells. But it won’t stop with these three.?
In the coming years the West will feel the heat turned up coming from Chinese brands active in these 10 industries. Europe and US will respond by spending huge resources to catch up and build Chinese great walls around these 10 industries. It will all be in vain. We are closing the stable after the horse has bolted. Especially as the ‘new quality productive forces’ plans to make the Chinese horses even stronger, faster and more independent.
?What Europe and America should do instead is to invest massively in future industries and cutting-edge technologies where Beijing is investing in today to prepare for 2030: general artificial intelligence, quantum information, genetic technology, deep sea and aerospace development, hydrogen, energy storage, future networks, next-generation microchips, etc. ?
?Once again, most nations will not pay attention as the media story will remain how China’s economy is in trouble and how Beijing is trying to save its economy by forcing innovation to happen top down. We are not seeing the bigger picture. The new plan is not intended to solve China’s economic challenges today, but to create new economic drivers for tomorrow and the day after tomorrow: China’s transition towards a moderately prosperous and mature economy by 2035. ?
?We should learn from our misinterpretation of the Made-in-China 2025 plan to recognise that when Beijing doubles down, tens of thousands of Chinese entrepreneurs envision new potential markets that will make them even more money if they jump on the horses that the CPC picks. It’s time the West gets off its high horse as China has now defined its ‘next miracle’ to be called “new quality productive forces”. Will the miracle work? Nobody knows. But it wouldn’t be China’s first miracle. And it’s hidden in plain sight!
CHINESE INNOVATION NEWS – MARCH 2024
1. China makes science and tech a budget priority with 10% jump in R&D
2. China clears US$70 billion ‘low-altitude economy’ for take-off with promise of minimal interference
3. China’s CO2 emission seems to decline this year
4. Alibaba to test rocket parcel delivery to ship goods anywhere in the world within an hour
5. China has 12? times more robots in its workforce than industry experts predicted
6. Chinese scientists create world’s most energy-efficient AI chips for mobile devices
7. China Generative AI updates March 2024
(Click the links in titles below to read a larger news article on each topic)
Beijing is putting its money where its mouth is when it comes to boosting the “new qualitative production forces”. For 2024, China will increase its investment budget in science and technology with 10% to amount to 51.5 billion USD. This is the largest investment increase in any major area of government spending – more than diplomacy, public security, education or defene.
China intends to issue in 2024 an additional 140 billion USD in special treasury bonds to fund its security capabilities and vital R&D. In dollar terms, China is the second biggest spender in R&D after the US. The US allocated $209 billion for federal R&D in the fiscal year of 2024, an increase of 4,5% from 2023.
China’s total spending on R&D in 2023, including private companies, was 460 billion USD (3.3 trillion Yuan). Government budgets represents only 11% of China’s total R&D spending. This is why I always warn not to underestimate China’s bottom-up innovation drive and not to overestimate Beijing’s contribution to make companies like BYD outcompete global firms.
Most important, China wants to focus more on basic research, applied basic research and tasks that are strategically important for the country. 14 billion USD (or 27% of the R&D budget) will be spent on basic research to achieve breakthroughs in critical technologies, which is an increase of 13,1% from 2023.
So, all this, is super news for you as reader of my monthly newsletter!?
Interesting to watch are the industries that Beijing identified to serve as new growth engines. Noteworthy is the “low-altitude economy” that was mentioned for the first time as a strategic emerging industry at central economic work conference. The term refers to a wide range of industries related to both manned and unmanned vehicles operating below an altitude of 1,000 meters: from drones to flying cars, from goods delivery to emergency rescue, …?
?This sector grew 33,8% in 2023 to 70 billion USD, which is a very similar 30% growth of the “New Three” (新三样) engines of economic growth: Batteries, solar and electrical vehicles.
Beijing has now given the green light for more activity by drones and other aerial vehicles. As investor looking for the next big thing to literally take off, I would definitively follow that market closely. Why? The fact that DJI has managed to maintain a dominant market position in global consumer drone market of approximately 80% shows that aerial aviation with rotors is driven by a Chinese innovation and ecosystem build around it!
?On April 25th, I will visit eHang in Guangzhou on a nexxworks innovation tour to witness how their eVTOL (electrical vertical take-off and landing) vehicle will take off to the skies and global markets. If anyone wants to buy one, with one click you can buy on Alibaba’s Taobao (like eBay) for a mere 332,000 USD. What are you waiting for?
领英推荐
The “New Three” drivers (see above) of China’s GDP growth are all related to clean energy transitioning. But how is China doing on its promise to become carbon neutral by 2060 and peak emissions by 2030? According to Qi Qin, a China-analyst at the Finish energy research platform CREA, China generated 400 TWh of solar- and wind energy in 2023, generating more green energy last year than the annual energy increase demand of the whole country.
?In theory China’s carbon emission should therefore decline this year. As China is the biggest polluter in the world, with 27% of all CO2 emissions globally, the year 2024 could be a major milestone as it could be the beginning of a persistent GLOBAL carbon emissions decline.
?Only one Chinese expression comes to mind: 加油！JiaYou! (Google or ChatGPT it!)
?The combination of China’s intensified regulation on the real-estate sector, financial support in green industries, and declining cost of clean energy driven by technological advancements and more efficient supply chains are quickly making renewables more competitive than fossil fuels.
?China however still needs to effectively connect all renewable capacity from the West of China to the east coast where most people live. I am cautiously optimistic as China considers investment in green infrastructure the best alternative for the sluggish real-estate investment. (reference to my previous newsletter of February on electrical power in the Gobi Desert)
?We might not have reached the pivot point in global warming just yet, but I believe we have to embrace any positive news that can truly get us there. 加油！
?
Alibaba is partnering with a domestic rocket developer start-up Space Epoch, with the lofty goal of delivering parcels anywhere in the world within an hour. The rocket provider Space Epoch has completed three funding rounds of more than US$41.5 million.
?The reusable rocket that can land on sea is an experiment to take place in the near future together with Alibaba’s Taobao market place (same that sells eHang eVTOLs). Their aim is to provide cargo space of 120 square meters, with the ability to carry as much as 10 tonnes, including items like a car.
?In newsletter of April 2023, I wrote that the Chinese Academy of Sciences (CAS) announced that CAS Space performed a successful test of its first vertical launching-from-land and landing-at-sea rocket in China. All this is kind of virgin territory, and not yet reality.
?The fascinating part is that Alibaba is serious about it, while many do laugh it away as an April 1st joke, when the news broke. Are Chinese becoming jokers or going bonkers like Elon Musk, or maybe they are on a similar mission?
According to ITIF, an independent think tank in Washington, China is using automation far more than expected based on what workers get paid in manufacturing, with 12? times more robots in use than predicted. China has been the largest industrial robot market in the world for eight consecutive years. In 2022, 52% of all industrial robots in the world were installed in China, with homegrown industrial robots representing 45.1% of the total sale in China.
This is an indication that Chinese workers are being replaced by robots at the fastest rate in the world. In China, the decision to replace a human worker with a robot is not about saving money, but driven by policy from Beijing to create China as leading automated manufacturer to fuel its economic growth. Robots, including humanoid robots, are also the ideal ‘visible’ expression of China’s progress in innovation. It’s a way for Chinese companies to show (off) their level of advancement, which spawned numerous Chinese robotic start-ups, many based in Dongguan in the South of China.
At ISSCC, the most prestigious conference in the chip design industry, Chinese scientists have unveiled two ultra-low-power AI chips with record-breaking performance. Through algorithm and architectural optimisation, they have also managed to significantly reduce this power consumption.
The first of the two AI chips was designed for smart devices to enable offline voice control. This chip excels in keyword spotting and speaker verification by recognising the voice signals of a target speaker, even with environmental noise. The architecture optimizes energy consumption through its dynamic computation engines, adaptive noise suppression circuit, and an integrated keyword and speaker recognition circuit.
The second chip the team presented was designed to detect seizure signals for people with epilepsy to be used in wearable devices. It uses electroencephalogram (EEG) recognition to alert of an ongoing epileptic seizure so the patient can seek medical help or treatment. The Chinese researchers optimised a zero-shot retraining algorithm allowing a pre-trained AI model to make accurate predictions on unseen data without the need for collecting patients’ seizure signals, achieving an accuracy rate of over 98 per cent.
This showcases how Chinese innovation is often still driven by solving real-life problems [=pragmatic] and driving (energy) cost down [=increase profit] in all their novel designs.
?
7.???? China Generative AI updates
Here are some of the China newsflashes of March 2024 on Generative AI.
?The KwaiYii LLM from Kuaishou, a top Chinese short-video platform operator, should be able to match ChatGPT-4 in the next 6 months and already surpasses GPT-3.5. They also claim that its KeTu text-to-image model has outperformed Midjourney V5 already.
?Meanwhile, Tencent said its Hunyuan LLM is now among the world’s best and integrated in some of the firm’s enterprise models. For example, Tencent’s 'Follow-Your-Click' tool is able to animate any part of a picture with a simple text prompt and mouse click.
Alibaba-backed Moonshot AI claims breakthrough in expanded Chinese-character prompt for Kimi chatbot
?Generative AI start-up Moonshot AI announced a major update of its Kimi chat bot that can handle up to 2 million Chinese characters in a single prompt, a 10x upgrade from previous version. The move follows Google, which recently unveiled the latest version of its Gemini LLM that can handle up to 700,000 English words.
Premier Li Qiang said “AI is a vital engine for the development of new quality productive forces”, … “In the AI race, we must strive to overtake rivals at the bend or by swerving into a new lane”, … “rich application scenarios give China an edge in the AI race”, and he called for the expansion of AI applications under a more loosened up regulatory regime.
Wang Changhu - a former vision technology head at TikTok - and founder of AIsphere, a Chinese text-to-video start-up, has vowed that his video generator PixVerse would catch up with OpenAI’s Sora in three to six months. The Bytedance “gene” gives them an edge.?
?Baidu’s founder Robin Li indirectly acknowledged that its LLM Ernie is still inferior to GPT-4 in English, when he revealed that Ernie performed better than ChatGPT-4 when asked to generate a particularly complex poetry meter dating back to the Tang Dynasty.
Nanjing University is the first of China’s universities to make AI education mandatory. The new curriculum comprises a mandatory core course on AI fundamentals, complemented by various AI literacy and interdisciplinary courses integrating AI with an array of academic subjects. At present, at least 248 universities in China have introduced AI majors.
A Peking University team, in collaboration with RabbitPre, has launched the project to reproduce Sora, named ‘Open Sora’. The small team hopes to gather the strength of the open-source community to complete the reproduction work.
Kai-Fu Lee’s AI Company “01.AI” brings its ’01.AI API’ online and announces the Open Source of the Yi-9B Model
Kai-Fu Lee’s 01.AI has recently launched its official API. Users can now experience the Yi series AI large models. Furthermore, the Yi Model API is fully compatible with OpenAI API, allowing users to smoothly migrate by making minor code modifications. 01.AI announced that they would soon open source the Yi-9B model – their most powerful model in terms of code and mathematical capabilities. It has previously released two open-source large models, Yi-34B and Yi-6B, which are claimed to be completely open for academic research and simultaneously available for free commercial applications.
If you know of any other breaking China innovation news from March that I missed, do let me know so I can add it in next month’s newsletter!
Exploring China's shift towards research over development is a move as transformative as the Internet revolution. This echoes what Aristotle meant about the roots of education being bitter, but the fruit sweet. ??#innovation #ChinaRnD
Love the insights on China's transformation! For deeper engagement, try integrating interactive content like polls or quizzes related to your topics, enhancing user interaction and getting real-time feedback.
B.Sc. in Chemical Engineering , M.Sc. in Nuclear & Energy Engineering
7 个月Awesome as usual ??????
Serial entrepreneur, strategy consultant, raptor conservationist, geopolitical commentator & China coach, Maverick Diplomat
7 个月Hi Pascal, always good to read you newsletter. When China announced “Made in China 2025”, it was not just seen as a fair technological & economic challenge: Instead, Huawei CFO Meng Zhou was arrested in a highly symbolic fashion, to humiliate the flower of Chinese high tech industry, kicking off the policy of “roll back”. The Western fear: technological prowess creates economic power, creates military power, creates political clout. Watch for the key word "National Security" to sanction anything. As China increasingly benefits , today, the very inventors of the “global rules based order” undermine it, compare e.g. the constant US veto to fill vacant WTO judges. The West invited China to this game, first with cannon boats, then through WTO accession. Now the West tries to not only roll back China, but even the global order in which it has gained too much weight for our taste. And now? Can China fuel its development largely from within,? Will nations “on the fence” like export-oriented Germany be brought into the US fold or can they resist? How can mankind solves its global problems if one half prefers a new schism also in technology? China has the ambition and potential to overtake. How will the West react in such case? ??