China’s price war on AI and the Japanese who “don’t know how to use it”

July 11, 2024

Greetings from Yifan in California, your #techAsia host this week. I just got back from Independence Day, which officially kicked off the summer season.

I’ve attended several 4th of July and summer parties in Silicon Valley over the past few weeks. While AI is still the hottest topic in town, the upcoming US presidential election also came up in almost every conversation I had or overheard.

While California remains a deep blue state, Silicon Valley has been divided over Biden and Trump in recent years as some in the traditionally liberal tech industry have leaned rightward following the Covid-19 pandemic and social justice movements like Black Lives Matters. The shift has been led by tech billionaires like Elon Musk, who has spoken out against so-called “woke culture.”

But neither presidential candidate was particularly popular at the parties I attended. One reason is that they have no plan for how they plan to regulate the rapidly evolving field of artificial intelligence. The tech industry doesn’t like regulation, but as the founder of an AI startup told me, “No industry can thrive in the long term without regulation. That’s chaos.”

As AI becomes more widespread and powerful, the U.S. needs a concrete plan to regulate this technology, and neither Trump nor Biden have offered anything.

Following the less than convincing debate between President Biden and former President Trump, calls for a new Democratic presidential candidate have grown louder. Vice President Kamala Harris, who some see as the most likely successor should Biden withdraw from the race, has led the administration’s efforts to regulate AI, including attending a global AI security summit hosted in the UK last year. The US could take a clearer path to federal AI regulation should Harris ultimately end up in the White House.

Whoever is elected, Washington’s goal of outpacing China in technology will not change, nor will its crackdown on the country’s access to American AI technologies. ChatGPT developer OpenAI recently informed users in China that they would be banned from using its tools starting July 9, and some politicians are even pushing for export controls on open-source AI models.

Will such measures hinder China’s AI development or inadvertently boost the growth of domestic developers? We will have to wait and see.

AI at a bargain price

While much of the world is still trying to figure out how to commercialize artificial intelligence, a price war has already begun among developers of AI models in China. OpenAI’s decision to block all access from the country has fueled the race between Chinese internet giants and startups to fill the gap.

Companies like Alibaba, Baidu, TikTok owner ByteDance and various startups are competing to offer a lower price per 1 million tokens. Tokens are a unit used to measure the number of words in a query or answer, according to Nikkei Asia’s Suzuki rider writes.

While price cuts can help increase sales, they do not contribute to profitability. How sustainable can a price war be when AI’s path to profit is still unclear?

Financing power

Neil Shen, China’s most powerful technology investor, launched the largest fund by a private venture capital firm in China last year despite a financing freeze.

The Financial Times announced this week that his venture capital firm, which has been called HongShan since the spin-off, has launched a fund of 18 billion RMB ($2.5 billion) this year, writes Tabby Children And Eleanor Olcott.

This is the company’s seventh yuan fund and comes almost exactly a year after its separation from Sequoia Capital.

Shen has launched a $9 billion fund in 2022 but has struggled to deploy that capital amid rising geopolitical tensions between Washington and Beijing, including President Joe Biden’s proposals last month to ban U.S. investment in sensitive Chinese technologies such as artificial intelligence, quantum computing and chips.

Shen’s latest yuan fund gives him more clout to launch Chinese startups, including in sensitive industries.

Who uses it?

Bar chart showing the percentage of people using generative AI

Many of our #techAsia readers now take the use of AI for granted. From ChatGPT to Microsoft CoPilot, generative AI tools have quickly become an essential part of our lives.

However, only 9.1 percent of people in Japan use generative artificial intelligence, Nikkei Kensuke Watanabe reports.

According to the Japanese government’s 2024 White Paper on Information and Communication, Japan is lagging behind in the adoption of generative AI. In contrast to Japan, 56.3 percent of respondents in China, 46.3 percent in the United States, 39.8 percent in the United Kingdom, and 34.6 percent in Germany said they use generative AI.

The most common reason for not using generative AI in Japan was that people “don’t know how to use it.” More than 40 percent of survey respondents said that generative AI “is not necessary in my daily life.” That’s more than in the other four countries.

Appetite for Turkey

The Chinese car manufacturer BYD plans to invest one billion dollars in Turkey and build a factory for electric and plug-in hybrid vehicles with an annual capacity of 150,000 units. This will create a second production and export center in Europe after the site in Hungary.

This will be the first EV factory by a foreign manufacturer in Turkey. The facility is expected to start production before the end of 2026 and is expected to employ 5,000 people, according to Nikkei’s Sinan Tavsan writes.

The news came after the European Union decided to impose significantly higher tariffs on electric vehicles from China. The higher tariffs have come into effect temporarily while negotiations between Beijing and the 27-nation bloc continue. A final vote of member states will take place in October to decide whether to lock in the tariffs for the next five years.

Rihondo