Shake it up

China is moving into more hardcore tech innovation with artificial intelligence

Key Points
  • There is a massive amount of money flowing into innovation in artificial intelligence in China, according to an investor
  • William Bao Bean, general partner at SOSV, said investors backed companies that solved basic problems in the country over the last 15 years
  • Now, he said, China is a lot like the U.S., where there is a need to have a revolution in tech in order to make an impact

The internet revolution in China saw companies design products and services to solve social issues in the world's second-largest economy. Now, businesses are working to innovate in more hardcore technological areas such as artificial intelligence, according to a leading investor.

Workers at their desks inside Tech Temple, a co-working space for start-ups sponsored by Infinity Ventures Partners in Beijing, China, on March 12, 2015.
Tomohiro Ohsumi | Bloomberg | Getty Images

William Bao Bean, general partner at early stage venture capital firm SOSV, said at a panel at the Singapore Week of Innovation and Technology that significant sums of money were flowing into AI.

"So the last 15 years, entrepreneurs and [venture capitalists], like us, have been investing in companies that solve basic problems," he said, adding most of the problems today are solved "pretty well" in the country.

Currently, China is a "lot more like the U.S., where, in order to make an impact, you have to have a revolution in tech," Bao Bean said. "So you're seeing massive amounts of money going into AI."

Global consulting firm KPMG said in January that China set a record high in terms of VC investments in 2016, despite a global slowdown in the field. The firm said the strong performance was expected to continue as AI becoming a stronger focus for investors.

In July, China's State Council issued guidelines on developing AI inside the country and set a goal of becoming a global innovation center for the technology by 2030.

Earlier this month, investment bank Goldman Sachs issued a report saying China has emerged as a major global contender in using AI to drive economic progress. Goldman identified four key areas for China in which development is needed to create value in AI. They are: talent, data, infrastructure and computing power.

China not only has a vast population but a majority of the people have some form of access to the internet.

Some of the companies to watch out for in China's drive for AI, according to Goldman, are the big three internet giants — Baidu, Alibaba and Tencent. Others include ride-hailing company Didi Chuxing, on-demand services provider Meituan-Dianping and speech and language recognition firm iFlytek.

At SOSV, Bao Bean is also the managing director of a Shanghai-based accelerator program called Chinaccelerator that helps global start-ups enter the Chinese market and Chinese firms go abroad.

The big problem Chinese start-ups face at the moment, he said, is user acquisition due to the fact that so much of the market is dominated by a very small number of companies.

"Unless you ally yourself with one of the big players, no one will ever see your product," Bao Bean said.

Experts have previously told CNBC that, in most tech sectors in China, investors tend to bet on two-to-three dominant players. Often, some of those start-ups merge to capture the majority of the market. For example, in the ride-hailing sector, the merger between two of the top start-ups resulted in the creation of Didi Chuxing, which currently dominates the market.

Bao Bean also said at a CNBC panel on Monday afternoon that start-ups planning to enter the Chinese market needed to rethink their products and services.

"If you want to come to China ... you have to understand what is your unfair advantage coming out and do you solve a problem for that local market," he said. "Because your product, generally, from the U.S. is not going to work very well in China ... it needs to be changed."