Why China's AI Strategy Just Might Work — With Grace Shao
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Welcome to Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond.

You asked for it, we're delivering a China episode all about China's AI positioning, how competitive the country is in AI, whether DeepSeek was an outlier and what might be coming next.

It's a show that we've been looking forward to doing for a while and very happy to be bringing to you today. And we're joined by a great guest, Hong Kong-based writer and analyst Grace Hsiao is here. She's the author of AI Pro-Am on Substack and is here to share with us everything that's going on in China and all the context that's been missing from the headlines. So Grace, great to see you. Welcome to the show.

Thank you so much for having me, Alex. Great to meet everyone here online. All right. Let's start off with this question that we've been wondering about here, which is whether DeepSeek was an outlier, whether it was just a smart group of people who came up with a real AI innovation or the tip of the spear showing that Chinese AI is really starting to be globally competitive and a force to be reckoned with on the worldwide stage. So I'm curious what you think about this. Was it an outlier or was it something bigger?

I think definitely we're seeing that. It's not an outlier to start off with, like, deep seek completely change how the world viewed our scaling laws, right? And that implication isn't even just on that end, but also I think it's really helped

bring confidence to Chinese AI space and AI entrepreneur space. And I think now one by one, we're seeing more and more like high profile AI entrepreneurs coming out. And a lot of them are quite young. They're born in the 80s and 90s. And this generation of entrepreneurs are very different. So first of all, to start off with, it's really interesting. Like a lot of you might have read Liang Minfeng, the CEO of DeepSeek and his whole team. They're actually educated in China.

So I think that's one aspect of where we're seeing people realizing this is a bigger trend and we're seeing more talent really coming from these schools.

And then I think another thing which was really interesting is I was talking to friends about it in China and they're saying, look, this is actually starting the rise of what is called the open source deal. Like, you know, people are really excited to be quoted, to be, you know, recognized. And I think this is, again, a really, really stark difference from the last generation of entrepreneurs. Chinese entrepreneurs now no longer are just driven by money and making money.

They're driven by recognition, influence, and power. And a lot of them are like visionary start off with and not businessmen to start off with.

with. And that's a huge difference in say, even the internet era, like let's say Alibaba, Jack Ma, like he talks about making money, making businesses easier. A lot of the businesses and products were actually driven by the desire to make money. And there's no shame around, you know, I can copy, copy, copy, and then make it bigger, better, right? Or I can make a cheaper version of whatever is happening in the West or a business product out in the West. But in China right now, a lot of these AI companies are driven by,

actually like missions. So I think then we're seeing a bigger trend of AI companies coming through. And I think last but not least is because of the last couple of years of geopolitical tensions, frankly,

It's not made it easy for them. And I think there's a stronger, even sense of nationalistic or patriotic desire to say, hey, we can do it. We can actually contribute to the global innovation scene. We can lead in innovation. So there's definitely a lot of that. And then I think that that's definitely something to continue to, we can continue to watch. And I expect that we will see more and more innovation in AI space coming out of China.

Grace, like I hear you, but I'm also surprised to hear you say that this is not driven by money, given that DeepSeek was created by a literal hedge fund. I mean, it seems like it would be the definition of chasing for money. But I think that's really interesting because we've seen I actually been reading a lot of the Chinese media or interviews or even coverage on him. And

And himself at least, like Liang Wenfeng himself, I think for sure people are saying he's actually quite an interesting figure. He came from an extremely frugal background. Like I'm talking about bricks made house, like a village.

He was hailed as a hero when he returned back for Chinese New Year recently. I think he came from this humble beginning and he was just a really smart nerdy math guy essentially. He went into quant trading. It's really interesting that essentially he footed the bills himself to do this. He made this pivot into AI a couple years ago and started training models.

So far right now, everything's for free. And that's another argument, like, well, top we can talk about, which is this huge embrace of open source and this expectation within the Chinese AI space that LLMs are right now all going open source, right? Even Baidu, I think, announced that they're going to go open source in June. Baobao is a famous one that was always open source and free, basically in that sense. Obviously, DeepSea's completely changed the narrative.

Now making everyone expect that LLM is just going to be for free in China. Why is the Chinese AI industry open sourcing all these models? Like, let me tell you, in the US, I think the view is that China is open sourcing these because they want to mess with US research labs and show the open AIs of the world that the product that was supposed to be their moat is no longer a moat and take the US AI industry down a notch.

Is our thinking on that line anywhere close to reality? I think, honestly, there's a lot of politically charged narratives going around given the last couple of years of where the trade war has led us and

on a very personal level for someone like myself and friends around me who had to kind of like build their identity and business and everything on these two worlds in an assumption of that working together, that's not good. It's not a very productive or cohesive narrative going forward. Now on a very business, I think very pragmatic way, let's just look at it. Um,

China actually, I wrote about this extensively with a collaborator called JS and we really examined why China had to go through or go with an AI monetization strategy that's really heavily leaning toward consumer versus enterprise. And it fundamentally starts with a really, really low SaaS adoption. So in China, we all know enterprise software just never really took off, right?

like this is based on many, many different things. Number one, let's just start off with, let's just look at economic structure.

China is still not heavily dependent on knowledge workers compared to the US where 60% of GDP is driven by knowledge workers. Actually, if you think about China's vast significant economic growth over the last three decades, it's very much driven by labor. So it's still in manufacturing sectors, it's still in even domestic consumption, but it's not really what we think of as white collar jobs.

And because of that, it's just not had that really strong structure ecosystem for enterprise to kind of flourish to start off with. Number two, I think we also looked at, you know, just

Because there was such a frankly poor protection of IP laws and everything, we saw that a lot of the softwares that came into China were actually kind of operating in this gray area of like pseudo legal space where you can actually just buy pirated Microsoft and like even mega legitimate companies would just use pirated like Word and Excel, whatever.

All of this laid the foundation to now where then we look at the internet conglomerates because there's no massive enterprise companies, right? Even the companies that have enterprise softwares like Alibaba or ByteDance, those products are their minor businesses, right?

So it's the whole internet economy is so dependent and relying on consumer facing applications. And everyone knows about the super apps, right? The massive touch points and like the 1 billion people, the DAU kind of figures. So now for China on top of all of that, and then deep sea completely broke the moat where like said,

and told everyone like, "Look, you don't actually need to pay for LLMs. Go and get your free LLMs." And the real innovation and use cases are in application. So everyone in China right now is like, "Okay, why should I pay for this? And why shouldn't I just try to innovate on top of it?" Essentially create LLM wrappers, right?

I think so that that's like one aspect of why we think China just went into consumer straight head on. Like, you know, they never really tried to really go into price direction, except for Alibaba. They kind of they still are trying to leveraging the cloud.

So can I just follow up here? So is what you're saying that we're seeing all these open source AI companies come or open source AI models come out of China because they're being developed by consumer facing companies. And so the plan for them is instead of let's sell our AI models to other businesses,

The plan for them is we're going to build consumer apps that are based on top of the large language models that we are developing. And if we open source them, we might get developers in there. We might speed this technology and then we'll basically play in our area of expertise and try to win that way. Is that why we're seeing so much open source? Is that what you're saying? A hundred percent. I think, I think.

I think you put it in a very succinct way. I think for me, like I was thinking about the macro and then the micro, right? Like, but like the way you put it exactly what it is. And I think even in during Alibaba's recent earnings call, Eddie Wu, like the current CEO even said something like, look, we're going to be like,

the provider of basically everything as in the infrastructure layer, we're the, we're the grid. But in the future, we don't know what monetization is. We're going to complete, we're going to continue to do our cloud thing, like our cloud business, which they're leading in China and actually in Asia. We're going to continue to enhance and, um,

make sure our model is frontier level, like they're Q in, and then we're gonna push out all these AI empowered products, applications, like they're Kua Ke and et cetera, right? So I think really the monetization strategy is all an application. And they're hoping that one day, whether it's your plugging ads or whatever, you know, charging at friction points, that's where it's gonna make the money.

It is interesting because I had a conversation with Kai-Fu Lee once for my book, and he had, I think maybe in one of his books about AI, called Mark Zuckerberg the most Chinese of all American CEOs. And the reason why he said that is because there is an environment in China where people see apps come up and then immediately copy them.

And it's accepted that copycat apps are just the law of the land there. And you better be ready to move and adapt and copy quickly. And that's clearly what Zuckerberg has done with him copying stories with Snapchat and copying TikTok with Reels. And it just totally makes sense that he's also...

Using this now Chinese strategy of open source AI to help develop consumer apps with Facebook, because that is there. That is effectively, I think, if I'm getting what you're saying right in terms of why, you know, Alibaba is developing a open source AI and Tencent is developing open source AI.

Facebook is doing the same thing where they're basically saying, we want to lead the direction of where AI goes. We want everything to be compatible with our systems. And that will in turn lead to growth in our products. And we're going to put it everywhere, uh,

including, you know, within Messenger and within WhatsApp and within Instagram. And that's how we're going to grow. And I was just speaking with Jan LeCun, the chief AI scientist at Meta, and he said there's 600 million people using their AI assistant within their apps compared to 400 million of open AI's chat GPT. Now they use it less. But the parallels in that strategy is just uncanny.

No, 100%. I think you completely nailed it on that. Like, I think Zuckerberg is the only one so far out of the American big tech that actually openly said, I think in that recent earnings call as well, he said something like, we're going to have a 1 billion people serving AI agent, right? Like that is his vision.

And that's exactly what you said the Babas and the ByteDance are imagining to do. What's interesting is I do want to point out is Tencent actually has not really been leading in their LLM development at all. In fact, they're the only and first one that have actually integrated DeepSeq

into their products, into their WeChat, which obviously all of you know about. It's like the super app of China, right? They got 1.3 billion. Yeah, but for those who don't, right? The leading messenger, you can do everything there, payments. So they've put DeepSeek within WeChat. Yeah, and I think I wrote a lot about this and then I do want to highlight how

significant this is and why that's a completely also changed mentality of Chinese AI players before Tencent integrated deep sea which is I think they did about a month ago everyone still kind of

trying to like close up their doors, like, like dope ball of bite dance. They were still being like, okay, we're going to do our own apps. We're going to spend a ton of marketing. We're going to try to get people onto our app, new app. Right. But the issue with that is you actually need to spend a lot of time and effort to convert new users. Exactly. To your point where if you already have an existing app,

like Facebook, and in this case WeChat for Tencent, you have the really, really strong strength of distribution and reach already. And I think this is something they did really well. So they basically said, you know what, we have a pretty crap LLM. We're not even going to try to compete on this right now. DeepSeek is great. We're going to just integrate it. So they first did that. And then I think another thing that, like you said, Meta is doing completely the same is

they have these walled garden or proprietary data per se, where if you think about it, like you said, WeChat is a messaging app, right? But beyond that, you pay utilities on it, you call for a taxi on it, you actually write blogs on it. Essentially, there's a built-in sub-sac on it. So all of this information,

is your proprietary information that no one else can scrape. Because if you go on China's Google, which is Baidu, and you want to look up an article that, you know, like Alex wrote, right, in Chinese, you're not going to find it on Baidu easily. But you got to search it within WeChat.

And then last but not least, I think it's also the point on functional adjacency. Because I said WeChat has a built-in search engine or search function, similar to Facebook, right? We go on Facebook, we search for events, things around us, people, we creep on people, we creep on companies, whatnot, right? There is a search engine built into it. So there's a very natural way for people to say, "Hey, maybe I'll just try the AI function," right?

versus if you think about TikTok, which is ByteDance, like main business, I'm not going to be like watching people dancing and buying cosmetics. All of a sudden I'm like, hey, let me search, you know, something using AI. There's no functional adjacency. So even though ByteDance shelled out so much money on marketing and brought in, I think, I would have to find a number, but like,

20 million DAU, which was quite impressive in the beginning. They were the leading kind of product for the GPT-like chatbot in China called Doubao. They never really took off. Once Tencent integrated DeepSeq into their WeChat product, it was like game over for them. So I don't want to let my original question go without going a little bit deeper into it, asking whether DeepSeq was an outlier, whether there's more...

that China is doing. So, okay. I'm trying to like think through our conversation. You've definitely said that China is quite good at productizing AI because there's this culture of open source and getting it into the product and building with consumer. But then I'm thinking through like, all right, so we have the deep seek breakthrough breakthrough. We know that Alibaba has a pretty solid LLM or yeah, LLM and it's called Quinn. But, but,

Where what gives you the confidence to say that China is positioned to be a global force in AI beyond the deep seek breakthrough? Because I'm trying to think through like what I mean, I'm looking at the US, we've got open AI now.

We have Anthropic. We have Google working on this stuff. We have Meta working on this stuff. The innovations that have sort of been central to this entire generative AI moment have been developed within these research houses. There is a widely cited AI paper that did come out of China that Jan mentioned on the show a couple weeks ago. But

Yeah, I just am curious to hear your perspective on like, what am I missing? Like what else is happening within China that that should lead us to believe that it's going to be this global competitive force in AI? I think on a high level, first, I just want to address there's like this point where people are like, it's a binary thing. You got a US in waiting for China win, right? And I think for where I sit in Hong Kong, we're really best, we get best of both worlds. We've access to both the West and the

the talent and the kind of information in China beyond the Great Firewall, right, is that there could be innovation in parallel in these worlds, and they might not be actually directly competing with each other. In some ways, like you said, I think for sure in terms of frontier models, the US companies, like you mentioned, the OpenEyes and Anthropix of the world have definitely led China's LLM development

by far for a long time until Deep Seat made a breakthrough, right? And this is something I've not shied away from writing about where everyone just assumed China's LLM was lagging.

Now that conversation now has kind of changed and it goes to your point where like we've now reached a point where if your LLM is just good enough per se, then we can see people build on top of it. And now we're seeing a lot of the, I think, strategy by businesses pivot into products. And the products can be two kinds, like you mentioned. One is what we just discussed. A lot of it is in consumer application and leaning on

the reach, the distribution, the, you know, just the walled garden kind of proprietary information, et cetera, right? That we just discussed. And then the other part I think China is really leading on and is being underappreciated, I think people are picking up now, is the physical AI aspect.

And this actually, again, it goes back to if your LM is good enough, the competition there is not really in can you innovate better in the LM, but it's actually in can you produce products in a cost-efficient way and bring together the software and hardware. And now because given that China we just talked about as well- This is robotics. Robots. Physical AI is robotics. Embodied AI, physical AI. And we're seeing this, right, where-

It's not even like, it's like given that actually people in industry are knowing, know that China is definitely leading this, just given that, you know, we've had 30 years in China here where all the manufacturing is done here.

like I'm talking about, not just like thinking about your clothes, right? Not your cotton t-shirts or whatnot. It's like all manufacturing. This is like your, um, your scanners or your batteries, your TVs, whatnot, anything and everything, right? All of these things, the, the, the mechanics of it, the engineering of it, the cheap labor, frankly, the cheaper product, the supply chain, it all kind of brings it together. So we're seeing companies like unitry taking up, I think like 40% global share and quadruple quadruple,

I can never say this word right quadruplet robots and like something like 30% in humanoid robots and they're like one third one fourth of the price of Boston Dynamics

So if you're looking at things like this, it's quite interesting. And a lot of people have been asking me actually, even on my own newsletter or while I'm getting interviewed is what about embody AI? And this is something where we're seeing companies like Chinese leading EV companies bring in the DeepSea GLM. And again, because it's good enough, we don't need it to like it right now, nothing is significantly better, right? It's good enough. You're actually advancing your intelligence empowered cockpits, right?

So, if you have, again, renewable energy available, abundance of energy, frankly, which the US right now is facing a shortage, you have manufacturing PoE, you have cheap products, and you have existing pretty strong EVs, and you embody them with AI, they're really, really strong. So, like I said, AI competition per se is not really just in LLM. I think in a very business and pragmatic way, it's actually in the product layer.

And China has a lot of strength in the product sense. Now, if say in another year, like LLMs develop into a complete different thing where like we cannot even envision what it might be able to do, then maybe the US again will have the advantage of having the know-how, right? Having the most advanced models to kind of be the foundation of these products. And China will just be at this level, right? But if we've reached a point where everything is kind of just good enough,

then I think commercialization is also going to be in product layer. Yeah, and I just want to say something about the nature of the questioning here. Look, I'm not...

coming out and like attacking China or anything like that. I'm just trying to represent the conventional wisdom in the U S and to have somebody who's an expert, like you be able to like, give us, give us that perspective just for the listeners also, like, you know, nothing against the Chinese AI industry. So I just think it's good to get these questions out there and like start to address them. A couple other things. First of all, we have a conversation on this podcast a

a couple of times a month, if not more about whether it's the product or the models that matter. So it's very interesting to hear you say that China's perspective is it's basically the products and these companies are putting the product, the model innovation into play in the products in various ways. 'Cause we've seen very little consumer AI in the US, very little. And so they're actually putting it into play, which is interesting.

And not only that, they also have now built cutting edge models. So you have both. Now, look, there's there's definitely competition between China and the US. I won't say that there isn't, but it is it is really interesting to hear more about this strategy. So, Grace, I'm actually curious if you could share. Oh, go ahead. I just want to add one point, like actually to my point on the that China is really focused on product. They have a strengthened product, but China.

This only changed after Deep Seek. Pre-Deep Seek, frankly, there was no really global frontier leading model, right? Even the QN series from BABA were doing okay, but there were nothing compared to the benchmarks, against the benchmarks with American leading models. I don't think anyone was like, oh, I'm having a better experience using QN or Kimmy compared to OpenEyes, ChatGPT. I do think Deep Seek was a...

going back to your initial question, DeepSeek was a huge milestone turning point for China. And I will use one example to prove this point is again, going back to ByteDance, they didn't have a very strong LLM. They put a lot of money into converting people onto their Doubao consumer app. It didn't do well because the experience was average and the hallucinators madness. It was like going off trails, right? But when DeepSeek came out,

and that complete change of foundation of it became it setting the bar for everyone having access to good enough model then I think the product product advantage could really come through I do think there is that so the first two years of since GBT's release since November 2022 the U.S. for sure by I mean U.S. companies 100% had a lead and no matter how he compared it

But I do think once we start shifting our focus into product, maybe Chinese big tech will have certain advantages. So what are they building in China? Like, what are the products that are coming out with AI baked in? Like I mentioned, you know, obviously there's a chat TV style chatbots. We have Kimmy. We have Doubao. We have like, you know, we have obviously Deep Sleep directly, etc. And then we have the...

We have a lot of video editing tools. There's a lot of video editing tools like CapCut.

There's even though itself, the interesting bit is multi-modules. So you can actually like chat within the app, having multiple conversations open. And a lot of them will be thematic. So you can have like a love guru. You can ask them about like your dating life. You can have someone be like your therapy. And you can be like, there's like a fake Elon Musk built into it. You can like pretend you're having a conversation with Musk. Like the consumer entertainment aspect is very different.

Versus like I think the US chatbot products are very efficiency productivity focused. Like, you know, you have the research. Again, it goes back to like, are you knowledge based worker? Or are you like, you know, blue collar worker who actually wants to use this for entertainment purposes? I think the vision of it was quite different in the beginning. So, yeah, I'm pulling up.

I'm pulling up this rest of world article and I have all these great examples. So for automotive, they say 20 Chinese automobile brands have announced plans to embed deep seek models that adoption appears to be focused on improving AI features, including voice control, high precision mapping, smartphone like access to music, web search and messaging.

It's also going into smartphones. China's top five smartphone sellers, I think you mentioned this, have all adopted DeepSeek in their system updates. Huawei used the R1 model to upgrade its Siri-like assistant. Harmony. I don't know, maybe Apple could use that because Apple intelligence has been a mess. It's also in home appliances. So this article says China's biggest home appliance company,

My idea has launched a series of deep seek enhanced air conditioners. The product is an understanding friend who can catch your thoughts accurately and it can respond to your verbal expressions such as I am feeling cold. It's also in health care. Nearly 100 hospitals around China have announced they will adopt deep seek in their operations.

operations. The applications include supporting diagnostic and treatment processes, analysis of medical imaging, quality control for medical records, and research on new drug uses. Now, U.S. companies are doing some variation of this, but not as bold and definitely not as quick. And there's a care, I think, or a

a caution in U.S. companies that you wouldn't see this stuff get adopted so quickly. So what is it about Chinese consumer tech and I guess Chinese companies in general that would create the conditions that you would see such mass adoption in such short amount of time? I think it's

It's really twofold. On a very high level, the government has really been encouraging this. So honestly, in a very top-down driven economy, when the government is pushing incentives and encouraging various industries to really embrace the technology, I think there is more of a...

preference for companies to say, "Hey, we should be part of this macro countries movement, right? Like countries, trend, whatever." There's that. But then on the other end, actually, in general, I don't want to say China doesn't have strong data protection, but I'm just saying in general, China's data protection

kind of regulations and awareness is definitely not as sophisticated or, or alert, people aren't as alert about it. And when compared to the Western markets, obviously, you is a most, most, most cautious, maybe market for data privacy issues in the US may be second. And then if you compare it to China, people are a lot more open to just kind of sharing their

data online. And I think because of there's less of a concern or backlash on that front, companies are more able to just say, I will adopt these companies, technology, new technology, and there might not be a lot of pushback by consumers. Now, the third aspect is like a bit more nuance and cultural is I think when you look at China and adoption of internet and smartphones,

It is wild. I'm talking about my 95-year-old grandma on WeChat sending me stickers 24/7. They're so sophisticated and it's a country-wide kind of sophistication just because people didn't really have PCs. A very small elite circle had PCs basically and then everyone just adopted cheap smartphones and now obviously everyone has iPhones and Androids and whatnot.

Because of that internet savviness, I think trying out new technology just has less of a

like barrier in that sense. So I remember even a year and a half ago, I was visiting Beijing for a work trip and I just popped into TCM doctor's office for like acupuncture, just as I'm like generic shoulder pains, right? And I was like, this wasn't a big deal. And then the little, like the young doctor, she was maybe like, you know, in her late twenties, she was quite new. And she started asking me, she's like, I know that you like, you're a tech reporter before, like tell, do you know anything about this thing called AI? She's like, I now use it for my diagnosis.

I was like, this is crazy. Cause in my head, I'm like, first of all, this is like, you know, like TCM is, you know, what we think of it is pretty traditional. It's what you call traditional Chinese medicine. It's not a high-tech industry.

But even practitioners in the TCM industry are adopting AI to enhance their diagnosis and their workflow. And I think it's really interesting because they almost use it as a fun entertainment tool because they're like, I'll chat with them and they'll tell me maybe it's right, maybe it's not right, then I'll suss again. And I think just that sense of identity

like that sense of acceptance in new technology is something quite different. Where I find even my friends in the US right now, who actually even there's one who works in Silicon Valley, we were talking about it recently, and he was so reluctant to try out AI. He's like, I don't need someone to write my emails for me. I can do that myself. I'm like, dude, you literally work in tech. How are you not using this to enhance your productivity? He's like, no, no, no, no, no. Like, are they just like polishing my emails for me? I'm like, you're not trying the deep research process

We're not trying a lot of the products that can actually help you cut like one third of your time. And I think there's that definitely mentality difference. I think you're hitting on a good point here, which is that I think the conventional wisdom in the U.S. has been like,

why can't China compete before deep seek the mentality was why can't China compete on AI and I think that everybody in the U.S knew that the data protection was not anywhere close to um at what it is in the United States I also think that there was an awareness that Chinese companies were getting around export controls from the U.S uh but definitely not to this extent that

people in the US are aware now. Like, clearly there's a lot of GPUs that have gone through Singapore and then go right to China. And that is, that might be tougher to get to. So data, so they, Chinese companies had more data, they had the compute. But I think the thing that people in the US underrated was the entrepreneurialism of China. I think that China was basically looked at as like, you know, a more collectivist society that has less entrepreneurialism.

But clearly there is a lot of entrepreneurialism. And maybe that was due to the fact that China clamped down a little bit on entrepreneurialism for a while. And now it seems like it's back in style. But clearly I think that's something that was underrated by people in the West. I think definitely. I think, you know, look...

I actually was working in Alibaba during the clampdown. It was quite a wild ride in the sense of the stock market just... And we saw a lot of US capital pulling out of China. And to your point, actually, I think entrepreneurialism or entrepreneurship in China was always quite...

vibrant, but it was seen in a different way because the last generation of entrepreneurs were very different. And it goes back to the ones born in the 60s, 70s, a lot of them, and I'm not saying it's bad, it's just that their business model was this happened in the US. Like there's Amazon, let's create an Amazon China, but make it like more Chinese, right? There's a, whatever, there's a WhatsApp, let's make a WhatsApp in China, but make it better,

So the mentality was like, can we copy copying that innovate? And I think the Uber founder said this on Alden podcast, even quite recently, a couple months ago. He was like, when he was trying to fight DD in China back in, I think the early 2010s, he's like, it was madness. The copying culture is madness. He's like, we'll come out with a new product and the Chinese competitor will just come out in another week. And they're very proud. They're like, we just did it better.

and then like they'll come out with a new product and they spent all their r d on it and obviously us engineers extremely expensive and chinese talent especially then was just frankly cheaper and there was compassion on anyone and at one point he's like actually just couldn't keep up because they were able to churn out a copycat version within a week or two but then it

At one point, it turns to innovation. So that was the last generation of entrepreneurship. And we actually, if you look back at it, whether it's BABA or Tencent or any of these big tech companies, their initial big pot of gold, per se, were all American or at least Western. Actually, US investing in China was extremely, extremely, super vibrant. All private equities had presence there, like the Warburgs, the Hickors, the whatnot.

And then all hedge funds had publicly listed companies of ADRs, they had positions in them.

It's just that during 2020 to 2023, China's internet industry had a bit of a, went on a little detour, okay? And that was caused by domestic regulatory issues where there was a lot of anti-monopoly probes and kind of investigation went to the doings of Alibaba and Tencent, et cetera. And there was a bit, and the rise of,

kind of, I guess, geopolitical tension kind of came to the forefront of even business narratives. I think there was an understanding before where politics was politics, but business went on as usual before that.

But during that period, China-U.S. geopolitical tensions actually became the front and center of even business relationships. And we saw a lot of U.S. capital pull out. And therefore, we actually did see a huge dip in just the confidence in the Chinese economy and honestly, the Chinese internet space for a little bit.

Now, AI has definitely, definitely powered it again. And even like you mentioned when we were chatting, BABA's stock prices went shot up again. Now people are discussing, is Baidu a good buy? I think they become the weather wane of Chinese economy and Chinese tech because the assumption is these big tech companies can actually leverage whatever AI innovation that comes through.

Given certain restrictions, U.S. private equity firms and VC firms still cannot invest in Chinese AI companies directly. The best way to get exposure to this innovation is through public investment into these Chinese big tech right now. Yeah, it has been interesting to see the culture shift. And you mentioned you were at Alibaba during the clampdown. I mean, Jack Ma basically, as far as we know, disappeared for a while, but he just made his way back into Chinese public life. That was a good sign, I think, for everyone. Yeah.

seems like that's i don't have him on my speed dial he's not my best friend or anything but can you call him bring jack into the podcast you gotta get him in to tell us what happened uh but okay but it is interesting because you know i it is it does seem to me and i think this is important to talk about that there has been a after deep seek like you know people saw deep seek and then we started talking about a u.s context within china

There has been a big change in terms of the way that the government thinks about tech, entrepreneurialism and artificial intelligence. And it was really interesting to read some of the coverage when China has this annual meeting, the National People's Congress, and it was all about tech technology.

and AI this year. This is from Bloomberg. AI fever sweeps China's political huddle, fueling tech optimism. For some years now, China's annual gathering of its national legislature has been an increasingly disciplined and choreographed affair. Its muted vibes particularly an echo of deepening concern about domestic stagnation.

Not this time. The National People's Congress seven-day gathering came on the heels of a breakthrough in artificial intelligence by China's homegrown startup DeepSeek that's fired up investors, politicians, and even regulators. It also followed President Xi Jinping's high-profile meeting with business chiefs, including Jack Ma.

In this meeting, Communist Party cadres from different regions competed to market their locales as China's next AI hub. Lawmakers made a raft of proposals from promoting AI-related education and scaling up the technology's application to boosting research and regulating the social impact. I mean, I think people outside of China need to pay attention to this. That is a major, major shift for the government.

Yeah, definitely. I think there was, well, there's been a lot of like municipal level or provincial level policies throughout the country that's really been boosting AI per se. And like I said, physical AI, especially in areas like Zhejiang province or Guangdong province where they're strong on manufacturing, they're traditionally manufacturing hubs.

and they're actually home to the overlooked kind of the tech companies like Zhejiang is home to Alibaba, Geely, the EV company, well, leading EV owner as well. And Guangdong, where it's like DJI, SenseTime, a lot of them are all in this area, the GBA area, Greater Bay Area, what they call.

So there was that. But this time with the AI policy push at the two sessions, it's something I think is a really positive signal to everyone because it just means that actually on a macro level, the government is very supportive of AI entrepreneurship, like you said. And it wasn't ever like...

that the government did not support entrepreneurship. It's just that the last couple of years, coupled with COVID, frankly, it was quite tough on the domestic economy. And I think, you know, when the world was so used to double digit growth for like so long, all of a sudden when it came down to like 5% GDP growth was, there was a bit of a readjustment of expectations, whether it's domestic or internationally. So I think this just,

boost that confidence a little bit. And I think, again, coupled with what I said earlier, that this generation of entrepreneurs are a lot more mission-driven than money-driven, I find, when I read about them. It's quite different. The whole atmosphere is quite positive. And it's really amazing to, speaking of the entrepreneurs and sort of the celebration of them, it's kind of amazing to see what's happening with the DeepSeek founder.

Ling, Ling Wen Feng. Am I pronouncing it? Yeah.

Yeah. I mean, you have to like, we have to talk about what's going on in his hometown, which you mentioned this small village. Um, this is from the times, uh, the village where his parents moved was, uh, was small and now sees his fame as their opportunity. The village has become a shrine to the man they call top scholar. Uh, he was a star pupil who was the top of his class and finished the high school math curriculums three years early. Um, the street leading to his house has been renamed top scholar road. Um,

To serve the tour parties that visit, they are now selling Top Scholar biscuits, Top Scholar hot dogs, and Deep Sea baseball hats. It's pretty amazing. It's really funny from a Western perspective, but I think if you actually look back at Chinese more recent history in the last even couple hundred years...

I mean, except the culture revolution, like scholars were actually a really celebrated and recognized way to pick even like politicians and like leaders in the government way back, you know? And it's like,

the Chinese society really really values and they call this the "Zhuang Yuan" so you can be the Zhuang Yuan which means you are the number one scored person of your city or your province and whatnot and these people will go on to go to the like I said the Beida Qinghua which is a Peking U, Qinghua University, Zhejiang University etc and even to this day you know

like it's still very celebrated if you were like the number one of your city or your province and you definitely wear with a badge of honor wherever you go. Um,

It's not that different from scoring number one in your high school in the US. We all had a valedictorian in that sense. But I think there's more societal recognition and praise. And because of his frugal beginning, because like you said, it's literally like a village. I think it just contrasts the kind of success he had. It's a bit more...

it's widely celebrated because China also celebrates this idea of like upward mobility because you know there's still such a huge actual income disparity within China like if you think about China of the modern China you think of Beijing Shanghai the quality of life is no different from New York or LA right but if you think about actually the vast majority of China out in the third fourth year cities

you're actually looking at still a developing nation. So he came from that kind of background. And now to be one of the most celebrated entrepreneurs in the world even for this innovation, it's a huge pride for the family and the folks back home. Yeah, you and I spoke before this recording, and I mentioned that

I spent a day in China on a stopover, but did leave the airport. And that does not qualify me to speak at all on China, although it was a lovely visit. But as we left Beijing and went to the Great Wall, I saw some I think I saw some of those villages and it was pretty, pretty astounding to see sort of yeah, it's it's undeveloped and it's it's very different from, you know, the big cities where that's a lot of people's picture of China today. Yeah, for sure.

I think so. I spent the last nine years across Asia. So now I'm in Hong Kong, but I've spent time in Singapore, Beijing and Shanghai as well.

For context, my parents are from Beijing, so I did grow up visiting Beijing here and there. But even then, I never actually lived in Beijing as an adult or really understood this country. And when I was a journalist traveling around the country, I was astounded by the income disparity, the awareness of the outside world. If you talk to people on the streets in Beijing, Shanghai, especially college-educated kids,

People are quite fluent in English. You can talk about Obama, you can talk about whoever, and they know about it really well. If anything, Chinese school system actually really focus on what's happening in the world, outside in the world as well. That's part of their education. But then you go to a third tier city, and because my Chinese wasn't that good, especially when I first moved to China.

And they're just like, people just come up to me because I had a slight accent. And they're like, are you Korean? Are you Mongolian? And I've had crazy questions like, are you Arabic? And I was like, I'm definitely not any of those. But it's just like this very...

siloed world of these little cities. They don't actually even travel to other cities within the country and they definitely not seen foreigners. And they have a very small lack of awareness what's happening out in the world. So when we think of China, sometimes you need to think there's the Beijing, Shanghai, and Shenzhen's, and then there's really the rest of the country. Definitely. And I guess from what I saw, if you drive outside of Beijing, maybe not even that far, you can be in that countryside. Definitely. Yeah.

I want to take a break because, well, we do need to take a break, unfortunately, but I want to come back and talk about three topics and then Grace, we can let you get on with the rest of your day. But I want to talk about robotics quickly. I want to talk about development, some other developments, including this one area that has what you call these six dragons. And then if we can get it in a minute about Manus and agents. So we're going to take a quick break and come back right after this.

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And we're back here on Big Technology Podcast with Grace Hsiao. She is a Hong Kong-based

writer and analyst. You can get her newsletter AI Pro M on Substack. It's AIPROEM.substack.com. And Grace, it's great having you here. Thank you again for fielding all these questions. You've mentioned robotics a couple of times. So let's just go there and spend a little bit more time. The videos I see on Twitter of Chinese robotics are insane. They have a level of adeptness, flexibility, awareness,

That is above and beyond, I think, anything I've seen coming from Western companies. Of course, you've had Elon Musk with a person in a robot suit. Okay, maybe they've had some other people piloting the Optimus, but the stuff that we're seeing from China has been pretty impressive. So give us the state of humanoid robotics in China in particular, and where can we expect this to go?

Yeah, I think to even start with, I think in the start of the year at CES, you know, people were saying there were like more than half the exhibitors were Chinese and majority of them were actually robotic companies. And, you know, like you said, there's humanoid robots, like the one that kind of went viral, which is like the dog, the robotic dogs from Unitree. And then, you know, you have obviously the other variations of embodied AI products. I think...

In China, industrial robots have not been new and that demand for industrial robots has not been new, right? Like we've, you know, like everyone's talking about, you know, the aging population, the urbanization, the reluctance to work in manufacturing labors, et cetera. And even, you know, the cost increase of human labor that's been happening in China. All of these have driven a lot of companies find industrial robot solutions. And that's been around for at least the last five, 10 years, right? But now,

I think human or robots in China is really interesting right now is because it's very rare for, I think, a place where you can have engineers actually understand the software and then the hardware. And that's where China's kind of

I think strength in the last couple decades of being a manufacturing hub really plays into it now because it's been the manufacturing hub for basically all appliances we can think of under the sun, like any home appliance we think of, right? There's a lot of know-how of hardware

building, in layman terms, right? In that sense. And I think beyond that, now we can embed this kind of, embed AI into it and software into it. What was the word for it? Let me find it.

Mechatronics, so the understanding of mechatronics is something that you know really China's had a huge advantage in and even Jensen Huang himself he was at HKUST Hong Kong University Science Technology in November last year for a fireside chat and he was saying look this GBA area which is the Greater Bay Area has all the talent in the world to lead in this technology because you got the headquarters of DJI, you got the headquarters of SenseTime

And those companies, kind of like the last generation AI companies, they really trained up a whole generation of engineers and mechanical engineers who are able to really embed software into hardware.

So there's definitely that. And then on top of that, because it's been a manufacturing hub, it's just frankly cheaper. The supply chain is just here locally. You can source everything here. So we're seeing that Unitree Robotics currently account for about 70% of global sales of humanoid robots, 40% of market share of quadruped robots. And that's just a solid leader in the industry. And I think their cheapest model goes for something like

$16,000 so it's crazy that you can just have that. We're seeing other robot companies like Galbot, etc. like all of these coming out as well. They're selling them as like nanny robots, you know, they can help you

you know, clean your dishes and throw your garbage out, whatnot. It's really crazy how advanced these technologies are in terms of their abilities of movement. My concern is right now actually the lack of regulation or safety kind of standard for them. As a mother of a young kid, I would never ever bring on a robot to my household because you just don't know if it can go rogue, right? And I think that's kind of the current discussion around this

globally as well as in China really why it's not really gone to mass consumer market yet. That is fascinating. I think just the advantage that you're talking about is, you know, it's you've elucidated so well. It's just the fact that China has the hardware and the software and being able to be so intimately familiar with both just gives you a massive leg up when it comes to humanoid robotics. That's fascinating.

I want to go now to a, we talked a little bit, we had people who are interested in like, where is some of the other innovation within China coming from outside of, outside of deep seek. And we've talked a little bit about the productization. We've talked a little bit about what Alibaba is doing. And I think it would be instructive to go through this example of the six dragons, which are all coming out of this area called Guangzhou. And, and,

Grace, if you could tell us a little bit about what's happening there and what these six dragons are, that would be great. Yeah, I think to first to understand is Hangzhou is considered a second tier city for, again, China standards. But the population is like...

like 9 million people or something like that. It's nowhere like- It would be the biggest city in the U.S., just FYI, folks. It's not a small city, you know? So in that sense, it's not, it's quite well known in China. And I think, oh, sorry, it has actually nearly 12 million people, including its suburban area. So yeah, it's not a small city. It would be 150% the biggest city in the U.S.,

Okay, no big deal. So in that sense, Hangzhou is, it's quite fascinating. So I want to start in a cultural context. Hangzhou is a really, really, really pretty city, actually. It's named the paradise on earth, city of silk. It has a West Lake. So,

In historical times, Hangzhou, the whole area, is where the scholars used to come together. They would admire the beauty of nature and write poetry. It's also known as where the prettiest girls came from. It's really well documented in Chinese traditional history.

Modern days, why is it relevant? Well, it actually is the home to Alibaba, as you mentioned, home to Zili, the conglomerate of car conglomerate that also owns a lot of the EV brands like Ziker.

It is also home to NetEase, the massive gaming platform. So itself is like actually like a home to like some of the biggest public listed companies in China. Okay. And then on top of that, it's been traditionally a manufacturing hub because I think the, um,

the proximity to Alibaba and obviously then the rampant and vibrant e-commerce space, we have a lot of home businesses around the whole area where they're the manufacturers of like the clothing, the textile, the toys and whatnot that you know of, okay? Even near like the fake bag places and the toy factories and all those things. So it's a really vibrant economy,

Now, Couple Now on top of that is, I think, a really special thing. I was kind of thinking about it that day. It's about a two-hour drive from Shanghai, so meaning it has access to international talent, capital, the most vibrant culture and art scene in China. And then it's kind of like a two-hour drive from Shanghai.

of far from Beijing. It's like a three-hour flight, two, three-hour flight. So you're kind of away from the regulations. Beijing and Shanghai are very different vibes. Think about New York and DC. You go to DC, people dressed in suits and it's a different vibe. People are more serious. You go on New York streets, everyone's wild. They're in their own world. And Shanghai and Beijing is a bit like that.

I remember when I first moved from New York to Singapore, I was like, oh my God, where are the crazies? I don't see anyone crazy anymore. I miss that energy. But my point is, I think if you think about that, Hangzhou is so strategically located to actually help entrepreneurs flourish, especially smaller businesses. So it's not as expensive as Shanghai, Beijing. It's not as regulated. And it still has all the talent because of all the big companies that's been there. It's brought in this whole ecosystem of people, right?

that they can people lean on. So now because of that, local government is also very, very pro businesses and they've really pushed out a lot of policies to incentivize AI development. You've really seen a lot of AI companies really flourish there. To start off with DeepSeek himself, right? Like DeepSeek itself is actually from Hangzhou. And

Unitree, what I just mentioned, the leading robotics company, also based in Hangzhou. And it's really interesting actually, out of the six small dragons, three of the CEOs were educated at Zhejiang University, which again I just mentioned, has a very very strong STEM education.

So this whole ecosystem has really served well. And now beyond Unitree DeepSea, there's a company called Game Science, Manycore, which just went public in Hong Kong, and BrainCo and Deep Robotics. So they each kind of work in different realms of AI, but supporting the whole layer, like the whole full stack and infrastructure in the ecosystem of the AI development.

And I don't think we need to go into details of each of them, but I just think it's really interesting that people are kind of overlooking this whole area of development. And I think 10 years ago, if you ask where is China's startup hub, it would have been Shenzhen, which I mentioned was like the hub with the headquarter of Tencent, DJI, SenseTime. Now it's actually up there in Hangzhou. And it's really interesting because that hustle culture, entrepreneur culture also really feeds into each other. And I think it's making it more and more vibrant.

Yeah, I looked at a photo of it as you were talking and will confirm to our audience. It is beautiful. So it's a very pretty city. Yeah. My next trip to China. I think we have to add it for sure. All right. Yeah, we're running out of time. Oh, go ahead. Oh, it's actually also the famous tea plantation. So if you ever see China's like tea plantation pictures, it's out in Hangzhou suburbs.

Okay. All right. So definitely adding it to the list. We are running out of time, but I don't want to leave here without getting your perspective on Manus, which is this AI agent that has sort of taken, I don't know, taken the world by storm. Maybe that's a little bit too strong, but it is another agent outside of China or coming out of China that people are paying attention to. Some people say, is this the next deep seek?

Do you think is China all about the AI agents now, speaking of putting the stuff into products? And what did you think about Manus? So full disclosure, I haven't actually tried it. So it's all secondhand information. It's like the most exclusive product. There's like, you know, 1% of people being let out. And I think invites to Manus are going for $1,000 a month.

Oh, more than that now, sadly. It's crazy. We're paying like 10,000 USD for this right now, apparently. Whoa, all right. Even my like, a lot of my like media friends and tech friends out like based in mainland, they're not being, they're not able to access. It's a bit secretive. So I don't have a really strong take on it because I don't think it's a deep seek moment for China. Because I think it's,

it did not fundamentally change how we believe AI is being developed, right? Like in the sense that Deepsea completely challenged the scaling law and what we believed in more capital is better training, better model, better AI, like this kind of mentality. I don't think Manus has disrupted anything we already believe in, which is AI will one day become like an assistant or extension of our capabilities.

And I think if you've used like open AI's operator, et cetera, like it's not that different. And frankly, what I've heard from people that have tried it, it's so glitchier than a demo. I think it's an interesting thing because it does show that means if like, you know, inference becomes cheaper and usage becomes cheap, usage of AI becomes cheaper, it's

more and more smaller businesses, like people with less money can actually jump into this game and compete and innovate on top. We talked about innovating the product and application layer, but does it really change fundamentally how we believe AI is developing? I think it just actually reinforces what we've been talking about, the mainstream narrative, which is AI is going to take over junior staff jobs, essentially that way, right? Or a lot of administrative work.

And that's really scary. So how do we train our next generation of young talent to be AI native? That's something where the conversation might lead to. But yeah, I don't think it's a deep-seek moment. But again, I've never tried it myself, so maybe I'm wrong. Maybe this thing is just crazy.

Okay. Last thing that's been coming up as we've been talking, people haven't really talked about the export controls and the shortages of GPUs within China. And, you know, we could get into the advisability of the policy, but I think that'll be for a different show. To me, the question is something like Manus, right? We just talked about it. 1% off the wait list. It's probably compute heavy. Something like DeepSeq, right? They had to cut off access, I think, for to either access to the API or access to the product because there was such high demand.

So I'm curious from your perspective, can Chinese companies keep like really become global forces if they're going to be limited by the effectively, I guess, the chip shortages? Everybody has the chip shortages, but I think they have them more acutely. And that might limit people's ability to effectively use the products. So what do you think about that?

It's definitely not going to be easy. And with DeepSea rolled out, everyone's using it. I don't know if you tried it, but the server would always say like it was like busy or like it couldn't, essentially the server couldn't actually serve the amount of interest coming in. So I think it's not easy and DeepSea trained on the H800s, right? So that was designed to circumvent the chip bans in 2022, I believe. So all of these things, basically we can say like it,

for SteepC to innovate beyond using the best top tier kind of newest chips. But right now it's definitely also hindering Chinese like, you know, AI development for sure. That's probably its biggest bottleneck because we talked about it. It has innovation, it has data, it has energy.

it doesn't have chips. So unless domestically, you know, we see like Huawei or Baba or any of the other chip players really make a breakthrough, this is going to be their biggest hindrance, I think for sure.

All right, Grace, look, it's late my time. It's earlier time. I was like, am I going to be able to stay up for this interview? Folks, we're pushing past 10 p.m. now. I have not felt tired for a moment. This has been fascinating. Thank you so much for coming on and sharing all this fascinating perspective on AI in China. Can't thank you enough, Grace. For sure. Thank you so much, Alex. And thank you for staying up late for this.

Yeah. Thank you for starting your day with this as well. I know. Yeah. Beginning of the day with a podcast is not always the easiest. So thank you for that. The Substack, we'd be remiss if we didn't call it out one more time. It's AI Pro-Em on Substack. AIPROEM.substack.com. No,

Many of the stories that Grace talked about today are on her sub stack. So do encourage you to go check it out. Thank you, Grace. Thank you everybody for listening and we'll see you next time on big technology podcast.