Our Head of Asia Technology Research Shawn Kim discusses China's
distinctly different approach to AI development and its
investment implications.
Read more insights from Morgan Stanley.
----- Transcript -----
Welcome to Thoughts on the Market. I’m Shawn Kim, Head of Morgan
Stanley’s Asia Technology Team. Today: a behind-the-scenes look
at how China is reshaping the global AI
landscape.
It’s Tuesday, June 10 at 2pm in Hong Kong.
China has been quietly and methodically executing on its top-down
strategy to establish its domestic AI capabilities ever since
2017. And while U.S. semiconductor restrictions have presented a
near-term challenge, they have also forced China to achieve
significant advancements in AI with less hardware. So rather than
building the most powerful AI capabilities, China’s primary focus
has been on bringing AI to market with maximum efficiency. And
you can see this with the recent launch of DeepSeek R1, and there
are literally hundreds of AI start-ups using open-source Large
Language Models to carve out niches and moats in this AI
landscape.
The key question is: What is the path forward? Can China sustain
this momentum and translate its research prowess into global AI
leadership? The answer hinges on four things: its energy, its
data, talent, and computing. China’s centralized government –
with more than a billion mobile internet users – possess enormous
amounts of data. China also has access to abundant energy: it
built 10 nuclear power plants just last year, and there are ten
more coming this year. U.S. chips are far better for the moment,
but China is also advancing quickly; and getting a lot done
without the best chips. Finally, China has plenty of talent –
according to the World Economic Forum, 47 percent of the world’s
top AI researchers are now in China.
Plus, there is already a comprehensive AI governance framework in
place, with more than 250 regulatory standards ensuring that AI
development remains secure, ethical, and strategically
controlled.
So, all in all, China is well on its way to realizing its
ambitious goal of becoming a world leader in AI by 2030. And by
that point, AI will be deeply embedded across all sectors of
China’s economy, supported by a regulatory environment. We
believe the AI revolution will boost China’s long-term potential
GDP growth by addressing key structural headwinds to the economy,
such as aging demographics and slowing productivity growth. We
estimate that GenAI can create almost 7 trillion RMB in labor and
productivity value. This equals almost 5 percent of China’s GDP
growth last year.
And the investment implications of China’s approach to AI cannot
be overstated. It’s clear that China has already established a
solid AI foundation. And now meaningful opportunities are
emerging not just for the big players, but also for smaller,
mass-market businesses as well. And with value shifting from AI
hardware to the AI application layer, we see China continuing its
success in bringing out AI applications to market and
transforming industries in very practical terms. As history
shows, whoever adopts and diffuses a new technology the fastest
wins – and is difficult to displace.
Thanks for listening. If you enjoy the show, please leave us a
review wherever you listen and share Thoughts on the Market with
a friend or colleague today.
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