First person: China's tech edge

Whichever measure you look at, China is way out in front when it comes to the technological revolution
by Anthony Hilton FCSI(Hon)


According to Huawei’s 2018 annual report, 58% of people will have access to a 5G telecoms network by 2025. Content and service will travel as one, and experiences will flow seamlessly. Or so they say.

But this requires a twentyfold increase in data by 2025. And artificial intelligence (AI), which supports it, will need to grow tenfold every year. By that time, the global AI market will be worth US$380bn, according to Huawei.

All this sounds good for Britain because it is good at AI and tech in general. Research by Tech Nation shows that it is third in the world for producing unicorns – new, unquoted companies with a value of US$1bn – after the US and China. 

And, as I wrote in an article for the Evening Standard in May 2019 (slightly paraphrased below), technology has the edge in terms of growth in London:

London & Partners, Mayor of London Sadiq Khan’s publicity vehicle, says that tech is fast becoming the dominant force in the capital. It listed Google at King’s Cross, employing 4,500; Apple at Battersea Power Station, which should have 1,400 employees by 2021; and Facebook, which has plans to double its capacity in London with up to 6,000 jobs. LinkedIn, Amazon and Spotify also have a major presence in the capital. It used to be that financial firms were where the growth was and, indeed, in ten years, 740 financial firms created 25,000 jobs in London. But in that time 822 tech companies, creating 27,000 jobs, also set up in the capital. Technology has the edge.

Douglas McWilliams, founder of the Centre for Economics and Business Research, talked about this in The flat white economy, a book he published in 2016.  

It was called The flat white economy because employees who worked in these tech companies seemed to live off that particular type of coffee. But that aside, it celebrated the fact that not only were scores of tech businesses start-ups, but they had a vibrancy and a diversity which left most other sectors gasping.

In April this year, McWilliams revealed that this economy had become the UK’s largest industrial sector. In 2013, it was estimated to be 8.7% of gross value added (GVA). By 2016, it had risen to 13.3% of GVA and the latest data suggests that in 2018 it had reached 14.4%. 

But the UK’s tech sector is still tiny in global terms. Huawei, for example, has 80,000 technologists in a workforce of 180,000, and that is just one company. The Alan Turing Institute, which is the UK’s national institute for data science and AI and a model of its kind, has 3,000 technologists.

According to Howard Covington, chair of the Board of Trustees of the Alan Turing Institute, America may not be where it is at, either. PayPal, the payment platform, handles 250 cash transactions a second. Visa and Mastercard handle 2,000 cash transactions a second. 

But Ant Financial and Alipay, which are part of Alibaba, the technology group created by Chinese entrepreneur Jack Ma, puts these western organisations to shame. Ant Financial handles an astonishing 250,000 transactions a second and it is already upgrading. The plan is that it will handle one million financial transactions per second at some point in 2020.

Trump’s motivation

Trump may say he is targeting China because of its unfair trade practices. But China seems likely to overtake America in AI in the next ten years, so his real motivation could be to disrupt and put them off course for as long as he can. According to the Financial Stability Board, established by the G20, Alipay is reported to have 870 million users, which already makes it the world’s number one payment platform. And other Chinese providers are doing almost as much. 

The US tech giants are also following the market, which they hope will lead to profit, rather than doing so much blue-sky research. The Chinese take a longer-term view, with the Chinese state, rather than the market, the dominant factor. That is one reason why Huawei is doing so well; it spent much of its life getting up to speed, but then had products that rivalled the west in ten years. Now, Made in China 2025 – the overriding government-inspired initiative – threatens to do the same for AI.

The second thing to note is the data. Every transaction from every phone in China is collected, processed and used to refine the product and to develop new features – lifestyle, where to shop, financial planning and so on. Europe has privacy laws that will make it much harder to use machine learning and AI. This gives a massive advantage to the Chinese authorities in bringing things to market.

Parker Fitzgerald, the London consultancy, has recently produced a report that also shows how much British banks are falling behind in technology. Since the financial crisis, the banks have been making their systems more resilient, shrinking their balance sheets, meeting litigation costs, and coping with regulation. But this has meant they have been focused on operational efficiency, not transformation. They have not focused, as the Chinese technology companies have, on getting rid of banks altogether and doing things differently.

Britain will certainly have a niche, but it will be the Americans and the Chinese who do the big stuff – and it is the Chinese who seem to have the edge.

This article was originally published in the October 2019 print edition of The Review. All members, excluding student members, are eligible to receive the quarterly print edition of the magazine. Members can opt in to receive the print edition by logging in to MyCISI, clicking on My account, then clicking the Communications tab and selecting ‘Yes’.

Once you have read the print edition, keep coming back to the digital edition of The Review, which is updated regularly with news, features and comment about the Institute and the financial services sector. 

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Published: 06 Nov 2019
  • Fintech
  • The Review
  • Opinion
  • Made in China 2025
  • Huawei
  • unicorns
  • Donald Trump
  • digitalisation
  • China
  • artificial intelligence
  • Anthony Hilton
  • 5G

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