He spent his formative years helping charter a path of innovation for companies like Microsoft and Apple. But it was when he spearheaded a failed attempt to bring Google to the Chinese market that everything changed for him, Kai-Fu Lee left Google in 2009 to set up his own venture capital fund Sinnovation in order to champion the local tech economy.
A profoundly powerful and influential character in his home country, he has accrued around 50 million followers who hangs on his every word on the microblogging site Weibo.
The China he champions today is glimmering with innovation but the West still view this giant with a sense of trepidation, an enigmatic nation still very much in the process of crafting its global message.
But it isn’t China that he says we should be worried about, Kai-Fu Lee wants to use his influence to prepare the world for the imminent AI automation apocalypse.
By Kai-Fu’s estimates automation will decimate up to 40-50% of jobs across the world but with enough creativity and compassion we might be able to plug that leak before it caves in entirely. By his standards this is not a test drill and governments everywhere should be forewarned and prepared with serious policies in hand before civil unrest starts to take hold.
We sat down with Kai-Fu Lee to discuss the enigma that is China, why Google will struggle to succeed in the largest tech nation on earth and why governments need to take automation very seriously.
“Whether you have the idea first is unimportant.” – China’s view on innovation
If we can jump straight in, essentially your argument in your book AI Superpowers is that the Chinese tech entrepreneurial economy will surpass Silicon Valley because they are better at copying and stealing?
No not at all, I think you’ve misunderstood that, that’s completely incorrect.
Can you then clarify it for me?
Yes, I think China’s success may have to do with copying, but it has evolved into something as great as Silicon Valley. I don’t think I’m in a position to say which is greater. You have two completely differently developed systems.
It’s like saying to someone: is air or water more important to you? Or are diamonds or gold more valuable?
I think both the Silicon Valley system and the Chinese system are of intrinsic value, both will create tremendous wealth, and both will be wildly successful even a century from now, but I don’t want to project who will surpass whom. It’s not an arms race, they work in parallel universes.
The Chinese model is about building an incredibly high wall so that no one can replicate or start a price war, it’s about detail orientation, operational excellence, having a huge market, having instantaneous feedback from the market, iterating so many times that it becomes innovative. And I think that is the spirit. I think the copying was the way it started.
“Google will have an uphill struggle.” – Kai-Fu Lee on the tech giant’s chances of success in China
I want to try to understand the mindset of the Chinese entrepreneur system because it’s relatively new for the west. You say it iterates, it’s detail orientated and that it’s a vastly different set up to Silicon Valley. In the West I don’t feel this is something we admire, we value the idea and the loading of innovation a bit more. There seems to be a vast difference?
No, you’re right. I think it’s a system where the ultimate value is what’s important. The way in which you get there is less important. Whether you have the idea first is unimportant. So you will use your idea, or someone else’s, or whosever.
Most likely you don’t even have the idea when you start the business, as you iterate and get feedback from the user you begin to gain insight and end up building the product that changes the world.
If you were to travel to our parallel universe and we showed you five of the best apps in China, you would want to have one. You would say they’re innovative, but they didn’t come about with someone who had a lightbulb go off and say ‘I’m going to build one of those’.
After five or six years of iteration, they are incredibly powerful, no less powerful than the apps from the US. It’s kind of hard for me to describe without showing you the app but think of the top 3 apps that shocked you when you saw them such as YouTube, GoogleMaps or Snapchat or Google search.
Do you think that this a very demanding mindset, that this success at all cost, much harder work discipline that you write about in the book will allow the Chinese tech powers to accelerate at a certain speed and show up other tech systems such as Silicon Valley?
I think because they don’t really sell to the same market, they don’t really compete. But I recently said at the TechCrunch event, that if there were internet users on Mars and both the Chinese and American entrepreneurs landed there, I would be betting on the Chinese.
In the real world, Europe and the US are completely bought into the American ecosystem. So your phones are full of the American apps, you can’t just insert a Chinese app.
It’s not just a language issue, it’s about research patterns, payments. It’s about your affinity for the brand, your belief in the company and all these other things combined. So these two universes aren’t bound to collide any time soon. That’s why I use Mars as an example. So I’m not trying to avoid the words “competition” or “war.”
Some people would not agree with your sentiment, some people would feel that there is an arms race happening, you only have to look at military and the defence units in America who have ramped up funding, and China has come out beating their chests saying they want to be the AI leaders of the world by 2030.
There is also a hint of scepticism and apprehension when you mention China. It might be because we don’t know so much about China because they have a thick veiled curtain in front of them.
Well I think every country has its aspirations. Donald Trump got elected by saying he wants to ‘Make America great again’, Obama said ‘Yes we can’. And China is saying we want to be one of the best in AI. It’s an aspiration. I think the ultimate hope of the Chinese government is that the Chinese people will be well off with the advances in AI. And the American dream ought to be that the Americans will be well off with AI. This is not a grabbing of resources, oil or land. This is each country developing its capabilities. Furthermore, it’s not like they’re both trying to sell to South America, and fighting over which product Brazil uses. It’s really in two parallel spaces, two countries are doing great jobs using different methodologies.
When you mention China though, some people would associate the country with authoritarianism, the fact that human rights aren’t encouraged, do you think that potentially stifles a true movement of innovation and originality?
I’m not an expert on government and of course people are entitled to their views. I think the important thing is that innovative products are coming out of China. You can’t ignore that reality. If I showed you WeChat you would say “wow, this is an innovative product”. Doesn’t the end justify the means? It’s not like there is a stolen idea, it is all innovated here. It took a lot of capital and fighting spirit. It’s just a different way of arriving at the outcome.
You’ve written of the Chinese government’s injection of funds into the tech economy an initiative called – guiding funds, growing from $7 to $27 billion in eight years. You also wrote that France and the UK have a strong tech economy but that they don’t have the venture capital ecosystem to improve. What is the Chinese government trying to get out of the tech economy by injecting this much money? And, what impedes progress for countries like the UK?
First, I want to say that the Chinese Venture Capitalist system pretty much first evolved with nearly zero government contribution. It evolved originally with foreign capital from America and Europe, who had realised that China was in a growth mode. Everything evolved in the private sector; the internet, AI and so on.
But in the grand scheme, $27 billion is not that much over 15 years. It’s helpful, it added fuel to the fire, but it is not the catalyst. Also, it came in late, by the time the guiding fund came along the venture capitalist ecosystem was already in place.
Having said that, I do acknowledge the government has contributed to the development of China’s entrepreneurial ecosystem. The Chinese allow a new technology to be launched with minimal regulation allowing it to blossom; mobile payment is a case in point.
“I think it will take 15 years for a big chunk of jobs to be displaced. ” – Kai-Fu Lee on the Automation threat
Do you think Chinese companies have ambitions of having a presence in the marketplace of the US and Europe? We don’t really use any technology from China. Or are they parallel universes as you say?
I agree with you on that. I think your acceptance of Amazon, Google and Facebook has reinforced their market position and its extremely difficult for Chinese companies to get in and compete. So that’s why there are parallel universes that are both mutually self-reinforcing; the US and China. Two countries with separate powerful brands with loyalty and entry barriers. But I do think with emerging countries, China may have some advantages. Chinese companies are making inroads into South East Asia and the Middle East. Largely through partnerships and investments and through expansion of the Chinese space. So I do think Chinese international connections will have some reach.
I’m wondering if you could comment on Google’s re-entry into the Chinese market after being absent for so long, recently their service Dragonfly was making headlines because the technology allowed searches to be linked with users’ telephone numbers making it harder to avoid government surveillance. Do you have any thoughts on this?
I left Google nine years ago. I would have thought this would reinforce my earlier message that a giant from one parallel universe wanting to go to the other is very difficult. It’s difficult for Google to come to China. And for the same reasons, you can’t imagine Chinese companies having much success in the UK. Google will have an uphill struggle. I was the head of Google 13 years ago and the parallel universes hadn’t taken the shape they have now, what was possible then is now very very hard.
A problem you discuss a lot is the automation issue connected to AI. In your op-ed in the New York Times, you talk about AI eliminating many kinds of jobs; Bank Tellers, Customer Service Reps, Telemarketers. How seriously should governments be taking this?
Well, it’s not imminent. The uptake will probably speed up in a couple of years as the technologies develop. We’re seeing for example companies saying in the next three years they will reduce the operational staff by half. So these are the signals that we see coming. But for many companies, there are still technical and adaptive issues to be worked out. I think it will take 15 years for a big chunk of jobs to be displaced.
Having said that, governments move slowly. It takes a while from paper to discussion and debate to possible action. So I think it’s already getting late for the government to understand the issue. The solution will have to be incremental because we are going to see increasing evidence that this is coming and it will be too late to understand the issue once we see 1% of the population being affected. We need to get ahead of the curve.
“We’re in the 4th decade of the gold rush.“ – Kai-Fu Lee on China’s exploding tech economy
In the book you write: “I fear workers will find themselves in a state of constant retreat like animals anxiously fleeing flood waters, anxiously hopping from one rock to another.” It’s quite a scary picture.
Yes, having done the research, this is going to be the case.
You say that China is not so preoccupied or worried about the automation issue.
I think most thinkers who are having this discussion today are Americans or Europeans. There are very few in China who are thinking about this issue. And the reason, as I mention in the book, is that the Chinese government generally takes care of issues like this and they’ve done a good job to date, so business people or professors don’t necessarily feel this is an issue for them to worry about.
Actually, I think that may be one of the smaller reasons. I think the largest reason is that the Chinese government has taken care of the agriculture to manufacturing transition effectively with a top-down approach. Different from the western approach and I’m not saying it is good or bad. But since the government has worked well before, people believe the government will take care of it when a change comes again.
I think Chinese people are more focused on making money. But that’s not because there is no strong cultural heritage of thinking about the meaning of life or existentialism. Go back to Eastern Philosophy, there’s no less diversity of thought in China. I think what happened in more recent years is that when Deng Xiaoping said “Let some people get rich first”, it kind of began the gold rush.
So we’re in the 4th decade of the gold rush. There are still many people whose families have been rich or poor for ten or twenty generations, and there’s a lot of expectations that the new child will be the one to bring the family into the middle class or into some wealth. So that expectation is pushing the Chinese people to work harder and into the method of entrepreneurship we discussed. And it’s also causing people to put material wealth at a higher priority. I think it’s a culture that we will get over in 50 years or so once the middle class builds up.
There’s no doubt that China is a fascinating landscape to the West, we view it with an equal mix of curiosity, fascination and trepidation. But I want to understand what are the biggest challenges are that China faces? It’s got an exploding middle class, a population of verging on 1.4 billion, and the demand from the middle class is growing whilst some are talking about an eventual economic dip.
I can only really comment on technology. As you mentioned, and I agree, having innovation is something we should all cherish. The current education system has improved, but there is still a significant gap between our institutions and the best in the UK and US. In particular, the US has this ability to attract great young people to study there and then to do great research and stay there. China does not have this advantage. The US can attract people from all over the world, and China pretty much has the Chinese. And as large a country as it is, it is only a fraction of the world. So to be global and be attractive for Chinese people to stay, China needs to attract people from other places.
What happens when technology becomes so invasive in our society that it takes all the blue collar jobs?
If we think about this pre-emptively, it comes down to two things; creativity and compassion. Creativity speaks to policy on gifted and talented education, letting people specialise early and follow their passion, so they can maximise their impact in their area of creativity.
But that’s a small percentage of people, it doesn’t solve the job issue. So compassion becomes the only solution. By compassion I mean in a broader sense. I mean being able to want to relate to a person. These would be jobs like nannies, teachers, nurses, social workers, psychiatrists. The jobs that require a large amount of human interaction.
I think governments should do what they can to increase jobs in this service sector. Those are jobs that it’s very difficult if not impossible for machines to do. Even if say machines could mimic to some extent, let’s say a robot nurse, people don’t really want it. I think with anyone one of these jobs, AI can contribute by becoming an analytical engine so that people can do what they do best which is paying attention to people. So that is probably the only category large enough to absorb the migration of jobs. I think over the next 15 to 25 years that includes things like social entrepreneurship, impact investing, voluntarism. It also forced smaller countries to think If China and India will not be the blue-collar service for the world, what are the service options that remain.
The Philippines and Indonesia have exported a lot of nannies, I don’t think they want that, but someone needs to think up a new formula for the people and for countries for jobs that AI can’t do. That’s the pessimistic thinking but I think the more optimistic thinking is that if we go 80 years into the future and look back its actually a blessing that our routine jobs are being taken care of by machines so we can do what we’re good at, what we love, we can think about the meaning of life and so on. But first, we have to get over the next 25 years when there is a potentially challenging transition on the horizon.
AI Superpowers: China, Silicon Valley, and the New World Order is out now through Houghton and Mifflin