China big data/AI: $470bn expansion will offer safe bets for investors

Investing in Chinese tech stocks has been difficult and dangerous this year because of political intervention. But for nearly a decade before, the same stocks delivered strong, predictable returns. A fresh batch of local tech companies could soon recreate the success of China’s first generation of listed tech giants.

China aims to triple the size of its big data and artificial intelligence industries to ¥3tn ($471bn) of annual revenues in the next four years. It plans to build huge new businesses and a data exchange. The initiative will be a windfall for local companies.

Most specialised Chinese AI and big data companies are currently private. Expect initial public offerings to add to the tally of quoted businesses, which include Zhongchang Big Data, iFlytek and Cambricon. Shares have languished so far this year. Cybersecurity companies such as Neusoft, Sangfor Technologies and Bluedon Information have attracted little investor interest.

The push for self-sufficiency in big data and a stronger international position for China will be bad news for some. Beijing is likely to follow Washington’s lead in creating new barriers to cross-border data transfers. Tech groups that have listings offshore such as Didi, Alibaba and face tougher scrutiny.

The push draws parallels with Beijing’s aggressive plan from about a decade ago to grow its electric car industry. Subsidies fuelled rapid growth from 2009. Today, China is the world’s largest electric car market. Sales have tripled this year.

Quotas and subsidies take much of the credit. Chinese electric cars are not always competitive abroad. That has not stopped a flood of listings and share price surges for companies such as Nio, Xpeng, BYD and Li Auto.

There should be an equivalent bow wave of investment across sectors such as manufacturing, consumer goods, agriculture and medicine. At present, local governments and banks dominate investment in AI and big data.

Chinese data scientists have a good opportunity to refine algorithms and deploy them profitably for two reasons. First, the government will protect them from foreign competitors. Second, China allows businesses and state bodies to use personal information in ways prohibited elsewhere.

This would leave foreign investors to wrestle with ethical issues raised by data privacy — or the lack of it. The fuzziness of the interface between private and public sectors would be a concern, given the omnipresence of state security agencies.

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