Even as China Cracks Down on Tech, AI Companies Plan IPOs


The motives behind the government action are complicated. Officially, it is designed to curb anti-competitive practices, secure private data, and address income inequality or “capitalist excess.” But it also brings powerful businesses closer in line with the Communist Party.

“When Alibaba, Tencent, and JD.com are worth billions or even trillions of dollars and yet they are not under the Party’s direct control, this is a totally new and unprecedented reality that China never experienced in history,” says Zhiwu Chen, a professor of economics at the University of Hong Kong.

Many experts describe the moves as a kind of punitive industrial policy—an effort to guide China’s technology industry toward areas seen as vital to economic development and geopolitical advantage. “Companies that are in hard technology, such as advanced engine manufacturing, computer chips, biotech, and defense—industries that China are really lagging behind in—are unaffected,” says Chen.

That could help explain why AI companies have gotten off lightly so far. “AI is of general importance to the economy,” says MIT’s Beraja. “It has been repeatedly named by Chinese officials as a ‘strategic industry.’”

The belief that AI could contribute to progress across dozens of industries was spelled out in a national-scale plan published by China’s State Council in 2017. The plan triggered widespread investment in AI by regional governments. Some AI companies have also benefited from government data, including images used to build and hone facial recognition systems.

Minyuan Zhao, an associate professor at Washington University in St. Louis who studies Chinese business, argues that AI companies are just as much in the crosshairs as anyone else, but they are already tightly tied to the government. “There’s less concern for the loss of control,” she says.

Graham Webster, a research scholar at Stanford who specializes in China, notes that the country’s new Personal Information Protection Law will tighten the rules for all companies handling personal information, including AI companies that sell facial recognition tech.

SenseTime warns potential investors that the data regulations might pose a headache. “It remains uncertain whether the proposed measures will be applicable to our business” or whether other changes could impose restrictions, the prospectus says.

In some sense, Beijing’s crackdown over personal information may serve to strengthen the government’s relationship with firms with which it shares data, if it helps build public trust in the idea that personal information is being guarded safely.

This might not insulate AI companies from further constraints or regulations indefinitely, however.

“AI is a relatively new field,” says Yun Sun, a director of the China Program at the Stimson Center think tank. “It is possible that the regulators do not yet fully comprehend the scope of the data security involved,” she says. “There is a pattern of the government reacting to such IPOs when the industry is more mature, actors are abundant, and regulation becomes a problem.”


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