Share Prices & Company Research

Press Release

15 June 2018

AI, data protection - and China’s competitive advantage

It’s been almost a month since GDPR came into force in Europe. However, James Andrews, Director – Head of Investment Management, looks East to examine how data is driving the rise of the Chinese tech sector.

I’m sure we’ve all seen the emails from businesses as diverse as shoe shops through to banks, as companies scramble to issue revised privacy notices in the wake of the new European data protection regulation, GDPR.
This is yet another phase in Europe’s crackdown on businesses’ use of people’s data, and a further increase in the regulation of US tech giants such as Facebook and Google.

Perhaps even more pertinent is the noise closer to home for these US behemoths. President Trump has asked the US postal service to increase the delivery prices for Amazon as he continues his personal attacks on the business. Furthermore, we are yet to really see the ramifications from the Facebook-Cambridge Analytica scandal play out. It is expected the potential impact will see an increase in governmental scrutiny on big technology corporations’ way of doing business.

Conversely, at a time when the West looks at how to control and curb the power of these US tech companies whilst protecting its citizens’ personal data, in the East, China is taking a different approach. Having been highly sceptical of their own tech companies and their potential to bring western influence, there has, over the last few years, been a definite change of direction, with the realisation that they could use the data gleaned to monitor and potentially influence its citizens. In addition, China has the resources to become a global leader, helping to increase its global power and influence.

Technological advancement is now state policy. A July 2017 State Council document set out the aim to position China as the world’s pre-eminent practitioner of artificial intelligence (AI), in both research and application, within the next 12 years.

The key for AI advancement is data. Much like statistics become more sound the larger the data set they are derived from, with AI the more data the better. More data means better predictions, better understanding of the world and its billions of variables. The more variables encountered, the more AI can understand and adapt. With China allowing the use of data and having the numbers advantage over the west, their data advantage is set to be a huge one.

For example, the number of mobile phone users making mobile payments is 50 times higher in China than the US. That means they have 50 times more data on mobile payment users’ buying habits, movements, idiosyncrasies, etc, than US companies.

Already Baidu, Alibaba and Tencent have amassed massive amounts of data and context, which, combined with their excellent operating systems, has seen them lead the Chinese charge, with the BATs moniker to compete with their American FANG opposition (Facebook, Amazon, Netflix and Alphabet nee Google). Share prices reflected the growth and the position of strength in which these companies find themselves. Tencent more than doubled in value in 2017, Alibaba nearly doubled and Baidu rose just under 50% in the same period.

For investors, the signs are positive for China’s tech companies, with state policy, a vast market place and access to ever-growing data sets contributing strong tailwinds to already strong market positions. With what looks like a strengthening competitive advantage over their western peers, we might well be looking at a decade-long structural growth story.

Investments and income arising from them can fall as well as rise in value and you may lose some or all of the amount you have invested. Past performance and forecasts are not a reliable indicator of future results or performance. Please note that this article is for information only and does not constitute a recommendation to buy or sell investments mentioned
AI, data protection - and China’s competitive advantage
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