I read AI Superpowers: China, Silicon Valley and the New World Order by Kai-Fu Lee and reviewed it as part of my ongoing review series.

Quick review: This book by Dr. Kai Fu Lee touched on a lot of themes I have been reading about for some time: artificial intelligence, China’s economic and technological rise and the similarities and differences between the US and China’s startup environment. Dr. Lee is certainly well versed in these subjects considering his background, having developed the world’s first speaker-independent, continuous speech recognition system as his Ph.D. thesis at Carnegie Mellon, where he then went on to become an executive at Apple, SGI, Microsoft and then led Google’s efforts in China. He now, among other things, runs Sinovation Ventures, a venture firm that invests in both the US and Chinese market. Overall I thought the book was quite an informative read (albeit at times came a tad self-serving and effusive in his praise for the Chinese market). In discussing the Chinese market, Dr. Lee effusively describes how the timing for Chinese startups is now, with plentiful opportunities, hard-working founders and unparalleled talent pools available to tap into. He does a terrific job illustrating some of the key differences between the Silicon Valley (broadly used to describe the US tech scene) and the Chinese tech scene. He further goes on to make a reasonably convincing argument about how in the age of artificial intelligence, China has a tremendous leg up thanks to the way their technology scene has developed over the last 20 years. Finally, his view of the future of artificial intelligence and its impact on society, particularly on the labor market — humans taking on more roles in the caregiving and ‘compassion’ driven fields — is similar to others and resonates. Overall, the book is a good read for anyone who is looking at the intersection of geopolitics and technology and AIs potential impact on it all.

Book highlights:

The headquarters of my venture-capital fund is located in Beijing’s Zhongguancun (pronounced “jong-gwan-soon”) neighborhood, an area often referred to as “the Silicon Valley of China.” Today, Zhongguancun is the beating heart of China’s AI movement. To people here, AlphaGo’s victories were both a challenge and an inspiration. They turned into China’s “Sputnik Moment” for artificial intelligence.

During the 1950s and 1960s, early versions of artificial neural networks yielded promising results and plenty of hype. But then in 1969, researchers from the rule-based camp pushed back, convincing many in the field that neural networks were unreliable and limited in their use. The neural networks approach quickly went out of fashion, and AI plunged into one of its first “winters” during the 1970s.

Neural networks require large amounts of two things: computing power and data. The data “trains” the program to recognize patterns by giving it many examples, and the computing power lets the program parse those examples at high speeds.

But years of ingrained prejudice against the neural networks approach led many AI researchers to overlook this “fringe” group that claimed outstanding results. The turning point came in 2012, when a neural network built by Hinton’s team demolished the competition in an international computer vision contest.

Sometimes you just have to prove it to shut everyone up.

Fundamentally, these algorithms use massive amounts of data from a specific domain to make a decision that optimizes for a desired outcome. It does this by training itself to recognize deeply buried patterns and correlations connecting the many data points to the desired outcome. This pattern-finding process is easier when the data is labeled with that desired outcome — “ cat” versus “no cat”; “clicked” versus “didn’t click”; “won game” versus “lost game.”

Doing this requires massive amounts of relevant data, a strong algorithm, a narrow domain, and a concrete goal. If you’re short any one of these, things fall apart. Too little data? The algorithm doesn’t have enough examples to uncover meaningful correlations. Too broad a goal? The algorithm lacks clear benchmarks to shoot for in optimization. Deep learning is what’s known as “narrow AI” — intelligence that takes data from one specific domain and applies it to optimizing one specific outcome. While impressive, it is still a far cry from “general AI,” the all-purpose technology that can do everything a human can.

The West may have sparked the fire of deep learning, but China will be the biggest beneficiary of the heat the AI fire is generating. That global shift is the product of two transitions: from the age of discovery to the age of implementation, and from the age of expertise to the age of data.

Many of these new milestones are, rather, merely the application of the past decade’s breakthroughs — primarily deep learning but also complementary technologies like reinforcement learning and transfer learning — to new problems. What these researchers are doing requires great skill and deep knowledge: the ability to tweak complex mathematical algorithms, to manipulate massive amounts of data, to adapt neural networks to different problems.

Today, successful AI algorithms need three things: big data, computing power, and the work of strong — but not necessarily elite — AI algorithm engineers.

…once computing power and engineering talent reach a certain threshold, the quantity of data becomes decisive in determining the overall power and accuracy of an algorithm.

Harnessing the power of AI today — the “electricity” of the twenty-first century — requires four analogous inputs: abundant data, hungry entrepreneurs, AI scientists, and an AI-friendly policy environment.

…one of China’s greatest weak points (outside-the-box approaches to research questions)

China’s successful internet entrepreneurs have risen to where they are by conquering the most cutthroat competitive environment on the planet. They live in a world where speed is essential, copying is an accepted practice, and competitors will stop at nothing to win a new market. Every day spent in China’s startup scene is a trial by fire, like a day spent as a gladiator in the Coliseum. The battles are life or death, and your opponents have no scruples.

This unparalleled trove of real-world data will give Chinese companies a major leg up in developing AI-driven services.

These recent and powerful developments naturally tilt the balance of power in China’s direction. But on top of this natural rebalancing, China’s government is also doing everything it can to tip the scales. The Chinese government’s sweeping plan for becoming an AI superpower pledged widespread support and funding for AI research, but most of all it acted as a beacon to local governments throughout the country to follow suit.

PricewaterhouseCoopers estimates AI deployment will add $15.7 trillion to global GDP by 2030. China is predicted to take home $ 7 trillion of that total, nearly double North America’s $ 3.7 trillion in gains. As the economic balance of power tilts in China’s favor, so too will political influence and “soft power,” the country’s cultural and ideological footprint around the globe.

The AI world order will combine winner-take-all economics with an unprecedented concentration of wealth in the hands of a few companies in China and the United States. This, I believe, is the real underlying threat posed by artificial intelligence: tremendous social disorder and political collapse stemming from widespread unemployment and gaping inequality.

For centuries, human beings have filled their days by working: trading their time and sweat for shelter and food. We’ve built deeply entrenched cultural values around this exchange, and many of us have been conditioned to derive our sense of self-worth from the act of daily work. The rise of artificial intelligence will challenge these values and threatens to undercut that sense of life-purpose in a vanishingly short window of time.

But it was a second phase — Chinese startups taking inspiration from an American business model and then fiercely competing against each other to adapt and optimize that model specifically for Chinese users — that turned Wang Xing into a world-class entrepreneur.

The battle royal for China’s group-buying market was a microcosm of what China’s internet ecosystem had become: a coliseum where hundreds of copycat gladiators fought to the death. Amid the chaos and bloodshed, the foreign first-movers often proved irrelevant. It was the domestic combatants who pushed each other to be faster, nimbler, leaner, and meaner. They aggressively copied each other’s product innovations, cut prices to the bone, launched smear campaigns, forcibly deinstalled competing software, and even reported rival CEOs to the police. For these gladiators, no dirty trick or underhanded maneuver was out of bounds. They deployed tactics that would make Uber founder Travis Kalanick blush. They also demonstrated a fanatical around-the-clock work ethic that would send Google employees running to their nap pods.

It’s an environment of abundance that lends itself to lofty thinking, to envisioning elegant technical solutions to abstract problems.

In stark contrast, China’s startup culture is the yin to Silicon Valley’s yang: instead of being mission-driven, Chinese companies are first and foremost market-driven. Their ultimate goal is to make money, and they’re willing to create any product, adopt any model, or go into any business that will accomplish that objective.

While Socrates encouraged his students to seek truth by questioning everything, ancient Chinese philosophers counseled people to follow the rituals of sages from the ancient past. Rigorous copying of perfection was seen as the route to true mastery.

Combine these three currents — a cultural acceptance of copying, a scarcity mentality, and the willingness to dive into any promising new industry — and you have the psychological foundations of China’s internet ecosystem.

American companies treat China like just any other market to check off their global list. They don’t invest the resources, have the patience, or give their Chinese teams the flexibility needed to compete with China’s world-class entrepreneurs. They see the primary job in China as marketing their existing products to Chinese users. In reality, they need to put in real work tailoring their products for Chinese users or building new products from the ground up to meet market demands. Resistance to localization slows down product iteration and makes local teams feel like cogs in a clunky machine.

Wang Xing embodied a philosophy of conquest tracing back to the fourteenth-century emperor Zhu Yuanzhang, the leader of a rebel army who outlasted dozens of competing warlords to found the Ming Dynasty: “Build high walls, store up grain, and bide your time before claiming the throne.” For Wang Xing, venture funding was his grain, a superior product was his wall, and a billion-dollar market would be his throne.

Underneath this transformation lay several key building blocks: mobile-first internet users, WeChat’s role as the national super-app, and mobile payments that transformed every smartphone into a digital wallet.

Chinese companies don’t have this kind of luxury. Surrounded by competitors ready to reverse-engineer their digital products, they must use their scale, spending, and efficiency at the grunt work as a differentiating factor. They burn cash like crazy and rely on armies of low-wage delivery workers to make their business models work. It’s a defining trait of China’s alternate internet universe that leaves American analysts entrenched in Silicon Valley orthodoxy scratching their heads.

The app lets you send photos and short voice recordings along with typing out messages. The latter was a major benefit given how cumbersome inputting Chinese characters on a phone was at the time.

phrase — “ mass entrepreneurship and mass innovation” —

to large pools of migrant laborers who would gladly bring that service to their door for a small fee. It’s an environment built for O2O.

While Airbnb largely remains a lightweight platform for listing your home, the company’s Chinese rival, Tujia, manages a large chunk of rental properties itself. For Chinese hosts, Tujia offers to take care of much of the grunt work: cleaning the apartment after each visit, stocking it with supplies, and installing smart locks.

That willingness to go heavy — to spend the money, manage the workforce, do the legwork, and build economies of scale — has reshaped the relationship between the digital and real-world economies. China’s internet is penetrating far deeper into the economic lives of ordinary people, and it is affecting both consumption trends and labor markets.

That massive gap is partly explained by the strength of the incumbent. Americans already benefit from (and pay for) the convenience of credit and debit cards — the cutting-edge financial technology of the 1960s. Mobile payments are an improvement on cards but not as dramatic an improvement as the jump straight from cash. As with China’s rapid transition to the mobile internet, the country’s weakness in incumbent technology (desktop computers, landline phones, and credit cards) turned into the strength that let it leapfrog into a new paradigm.

In the early days of ride-hailing apps in China, riders could book through apps but often paid in cash. A large portion of cars on the leading Chinese platforms were traditional taxis driven by older men — people who weren’t in a rush to give up good old cash. So Tencent offered subsidies to both the rider and the driver if they used WeChat Wallet to pay. The rider paid less and the driver received more, with Tencent making up the difference for both sides. The promotion was extremely costly — due to both legitimate rides and fraudulent ones designed to milk subsidies — but Tencent persisted. That decision paid off. The promotion built up user habits and lured onto the platform taxi drivers, who are the key nodes in the urban consumer economy. By contrast, Apple Pay and Google Wallet have tread lightly in this arena. They theoretically offer greater convenience to users, but they haven’t been willing to bribe users into discovering that method for themselves. Reluctance on the part of U.S. tech giants is understandable: subsidies eat into quarterly revenue, and attempts to “buy users” are usually frowned on by Silicon Valley’s innovation purists. But that American reluctance to go heavy has slowed adoption of mobile payments and will hurt these companies even more in a data-driven AI world.

Like the long-buried organic matter that became fossil fuels powering the Industrial Revolution, the rich real-world interactions in China’s alternate internet universe are creating the massive data that will power its AI revolution.

As I laid out earlier, creating an AI superpower for the twenty-first century requires four main building blocks: abundant data, tenacious entrepreneurs, well-trained AI scientists, and a supportive policy environment.

And in the crucial realm of government support, China’s techno-utilitarian political culture will pave the way for faster deployment of game-changing technologies.

Researchers compete on the basis of these records — not on new products or revenue numbers — and when one sets a new record, he or she wants to be recognized and receive credit for the achievement. But given the rapid pace of improvements, many researchers fear that if they wait to publish in a journal, their record will already have been eclipsed and their moment at the cutting edge will go undocumented. So instead of sitting on that research, they opt for instant publication on websites like www.arxiv.org, an online repository of scientific papers.

The complete AI revolution will take a little time and will ultimately wash over us in a series of four waves: internet AI, business AI, perception AI, and autonomous AI.

Internet AI is largely about using AI algorithms as recommendation engines: systems that learn our personal preferences and then serve up content hand-picked for us.

Remember, China alone has more internet users than the United States and all of Europe combined, and those users are empowered to make frictionless mobile payments to content creators, O2O platforms, and other users. That combination is generating creative internet AI applications and opportunities for monetization unmatched anywhere else in the world. Add China’s tenacious and well-funded entrepreneurs into the mix, and China has a strong — but not yet decisive — edge over Silicon Valley.

Optimizations like this work well in industries with large amounts of structured data on meaningful business outcomes. In this case, “structured” refers to data that has been categorized, labeled, and made searchable. Prime examples of well-structured corporate data sets include historic stock prices, credit-card usage, and mortgage defaults.

I call these new blended environments OMO: online-merge-offline. OMO is the next step in an evolution that already took us from pure e-commerce deliveries to O2O (online-to-offline) services. Each of those steps has built new bridges between the online world and our physical one, but OMO constitutes the full integration of the two. It brings the convenience of the online world offline and the rich sensory reality of the offline world online. Over the coming years, perception AI will turn shopping malls, grocery stores, city streets, and our homes into OMO environments.

That type of data collection may rub many Americans the wrong way. They don’t want Big Brother or corporate America to know too much about what they’re up to. But people in China are more accepting of having their faces, voices, and shopping choices captured and digitized. This is another example of the broader Chinese willingness to trade some degree of privacy for convenience.

Chinese mentality is that you can’t let the perfect be the enemy of the good.

The positive-feedback loop generated by increasing amounts of data means that AI-driven industries naturally tend toward monopoly, simultaneously driving down prices and eliminating competition among firms.

Hans Moravec was a professor of mine at Carnegie Mellon University, and his work on artificial intelligence and robotics led him to a fundamental truth about combining the two: contrary to popular assumptions, it is relatively easy for AI to mimic the high-level intellectual or computational abilities of an adult, but it’s far harder to give a robot the perception and sensorimotor skills of a toddler. Algorithms can blow humans out of the water when it comes to making predictions based on data, but robots still can’t perform the cleaning duties of a hotel maid. In essence, AI is great at thinking, but robots are bad at moving their fingers.

The “great decoupling” of productivity and wages has already created a tear between the 1 percent and the 99 percent. Left to its own devices, artificial intelligence, I worry, will take this tear and rip it wide open.

The most difficult jobs to automate — those in the top-right corner of the “Safe Zone” — include both ends of the income spectrum: CEOs and healthcare aides, venture capitalists and masseuses.

Asked to introduce ourselves or others in a social setting, a job is often the first thing we mention. It fills our days and provides a sense of routine and a source of human connections. A regular paycheck has become a way not just of rewarding labor but also of signaling to people that one is a valued member of society, a contributor to a common project.

To date, China’s tech elite have said very little about the possible negative impact of AI on jobs. Personally, I don’t believe this silence is due to any desire to hide the dark truth from the masses — I think they genuinely believe there is nothing to fear in the jobs impact of AI advances. In this sense, China’s tech elites are aligned with the techno-optimistic American economists who believe that in the long run, technology always leads to more jobs and greater prosperity for all.

Many of the proposed technical solutions for AI-induced job losses coming out of Silicon Valley fall into three buckets: retraining workers, reducing work hours, or redistributing income.

new profession, one that I’ll call a “compassionate caregiver.” These medical professionals would combine the skills of a nurse, medical technician, social worker, and even psychologist.

What makes us human will be the hardest thing to replace.

focus on communicating more with clients and making them feel cared for.

As a venture-capital investor, I see a particularly strong role for a new kind of impact investing. I foresee a venture ecosystem emerging that views the creation of humanistic service-sector jobs as a good in and of itself. It will steer money into human-focused service projects that can scale up and hire large numbers of people: lactation consultants for postnatal care, trained coaches for youth sports, gatherers of family oral histories, nature guides at national parks, or conversation partners for the elderly. Jobs like these can be meaningful on both a societal and personal level, and many of them have the potential to generate real revenue — just not the 10,000 percent returns that come from investing in a unicorn technology startup. Kick-starting this ecosystem will require a shift in mentality for VCs who participate. The very idea of venture capital has been built around high risks and exponential returns. When an investor puts money into ten startups, they know full well that nine of them most likely will fail. But if that one success story turns into a billion-dollar company, the exponential returns on that one investment make the fund a huge success. Driving those exponential returns are the unique economics of the internet. Digital products can be scaled up infinitely with near-zero marginal costs, meaning the most successful companies achieve astronomical profits. Service-focused impact investing, however, will need to be different. It will need to accept linear returns when coupled with meaningful job creation. That’s because human-driven service jobs simply cannot achieve these exponential returns on investment. When someone builds a great company around human care work, they cannot digitally replicate these services and blast them out across the globe. Instead, the business must be built piece by piece, worker by worker. The truth is, traditional VCs wouldn’t bother with these kinds of linear companies, but these companies will be a key pillar in building an AI economy that creates new jobs and fosters human connections.

In an age in which intelligent machines have supplanted us as the cogs and gears in the engine of our economy, I hope that we will value all of these pursuits — care, service, and personal cultivation — as part of our collective social project of building a more human society.

I use this phrase, however, specifically to reflect the technological balance of AI capabilities, not to suggest an all-out struggle for military supremacy. But these distinctions are easily blurred by those more interested in political posturing than in human flourishing.

We are not passive spectators in the story of AI — we are the authors of it.

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