24/06/2019

Seen in China: The Control of Innovation

Part 3

Former Advisor on Digital Issues

Is it still necessary to recall how China is taking a strong leadership position in digital technology, and more particularly in the field of artificial intelligence? Few countries have understood the dynamics of this new era as well as China. Back from a trip to China, Gilles Babinet, Advisor on digital issues at Institut Montaigne, gives us his analysis.

The theme has been elevated to a national priority by Xi Jinping himself and, in addition to the thousands of artificial intelligence start-ups that the country has, digital technologies in general have become a predilection theme for the education system. At the primary and secondary levels, students now have access to more or less extensive training - although it is impossible to know whether it is only for students in large cities, or whether this has been extended to the whole country. The same applies to the university system where computer science courses are particularly popular. The whole of society seems to be driven by this desire for digital emergence. Nowhere else are the essential factors for the healthy development of an ecosystem raised to such a high level of excellence.

Factor 1: the availability of capital

Very early on, it was understood that the financing of a digital economy based on disruptive innovation requires a wide use of venture capital. In China, regulations have been regularly relaxed to allow private financing; on the other hand, according to observers and particularly academics, state or parastatal money continues to represent significantly more than 50% of the total amounts invested ($71 billion for 2018).

Management representatives concede that 60% of their financing and investment capacity comes from public structures.

Funds of all types abound and, while the State, the army and the provinces generally intervene as funds-of-funds, universities finance innovation through in-house incubators. Thus, with regard to the TUS incubator, one of the most important in the country, management representatives concede that 60% of their financing and investment capacity comes from public structures. It is clear that China's huge trade surpluses have found here an area of predilection for reinvestment.

Factor 2: the quality of the education system

Visiting Beida University, observing the size of its computer science department and interacting with students quickly convinces one of a level of requirement rarely seen in the world. What is probably the most impressive is the very high level of general knowledge that students have. China is often imagined as an autonomous empire, reluctant to take any interest in the rest of the world. In fact, it is quite the opposite: research work abroad, successful foreign business development models, regulatory systems, etc… All these international examples are clearly identified, subject to quite an extensive analysis and are a source of inspiration for China. The level of master's students, although obviously difficult to evaluate in just a few meetings, does not seem to be lower than that observed at the Israeli Technion or the American MIT.

Factor 3: the cluster effect

The interaction between large companies, university systems, start-ups and even regulators is maximized. It is impressive to enter the huge incubators, federated by the universities, and to talk to their managers. There we see the attention big entrepreneurs give to mentoring young talents. In addition, a significant number of professors are involved in start-ups or collaborate with large companies to help them with their digital transformations. It is not uncommon for Deans to have high responsibilities within the state apparatus or the Party and help implementing regulations to optimize the development of the digital ecosystem. Finally, critical size is considered essential: we have already observed that the smallest incubators, unable to meet the very heterogeneous needs of start-ups, were not adapted. Tsinghua's four incubators together represent the human resources of several thousand people and have succeeded in bringing out no less than 60 unicorns in about twenty years!

Chinese digital geostrategy: between innovation and regulation

After discussing with researchers on digital issues, we were impressed by the quality of their reflections. Political science has largely integrated technology as a major factor in fundamentally rethinking the country's social organization. The central government is particularly sensitive to these issues. A few months ago, I mentioned the books on Xi Jinping's bedside table, demonstrating that, at the highest level of the State, understanding the challenges of artificial intelligence is considered essential.

I had the chance to discuss with senior Party officials, close to the Central Committee, and I was amazed at their mastery of these subjects. Often, one of their obsessions is to find a middle way between innovation and regulation. In this respect, they judge harshly the General Data Protection Regulations (GDPR), which they believe are designed exclusively from the point of view of user protection, without taking into account the constraints that it places on companies, especially small ones.

China and the protection of personal data

During these exchanges, I discovered that, contrary to a widespread idea in the West, Chinese digital start-ups are subject to numerous regulatory constraints, certainly as a result of censorship, but also to protect privacy, consumer rights and the employment conditions of platform workers, who are estimated to be in the millions in China. Thus, start-ups working in the medical field must obtain, before any experimentation, an authorization from the Ministry of Health, which scientifically assesses the risks that this could induce for patients.

Despite the obvious tightening of the regime, social scientists told me that they were convinced of the need to start planning regulations similar to what Europe has implemented with regard to data. While they understand that the famous social rating is in contradiction with the very principles of the European GDPR, they remain convinced that the challenge for China will be to find a middle way between the collective interest and respect for individual freedoms that the data economy requires.

One Belt, One Road

Everyone has heard about this $1 trillion financing plan initiative, the objective of which is to develop new silk routes to Europe using Chinese technologies. Every university and every major company must contribute to this project, and Chinese technologies are clearly analyzed as essential vectors of this strategy.

In response to criticism from many countries and default payments by some governments participating in the project, President Xi announced a new and more inclusive approach. As of now, large companies like Alibaba or Tencent are thinking about how they could relocate part of their R&D to their local partners, or even the manufacture of their products to partner countries.

The objective of which is to develop new silk routes to Europe using Chinese technologies.

On several occasions, my Chinese interlocutors have expressed to me their astonishment that Europe did not have the idea of launching such an initiative to develop Eurasia and, above all, Africa. This analysis of a glass ceiling that would limit endogenous development and would require turning to a form of co-development with third countries is widely shared and seems obvious in China, at least for the economic actors in the world of technology and university leaders that I have had the opportunity to meet.

Transfers of power

China's rapid development over just a few decades is staggering. One can only wonder whether, in a context of ever-increasing confrontation with the United States, the risk is not that of a stiffening incompatible with the aspirations of a middle class that is now massive and aspires to live in freedom.

The technological advantage that China seems to be taking does not facilitate the transition of powers with the United States. It is very interesting to note that conflicts are now expressed as much on a geographical level or on energy issues as they are in the technological field. Europe, for its part, widely admired by all my interlocutors for its high level of development and economic and social inclusion, seems to continue to count the points, still unaware of its immense potential and its ability to choose a destiny for itself.

Copyright : FRED DUFOUR / AFP