Tuesday, December 11, 2018

Lessons from recent Taiwan election

This was first posted in Asia Times.

Taiwan concluded its version of midterm elections about two weeks ago. The defeat of the ruling Democratic Progressive Party (DPP) was as one-sided as was the reverse outcome four years earlier when it beat the Kuomintang (KMT).

Among 22 seats at the mayoral level for counties and cities, the DPP lost seven after holding 13 seats in 2014, while the KMT gained nine, to end up with 15 seats, from six in 2014. The mayor of Taipei municipality remains a non-affiliated Independent.
In terms of total votes cast, the KMT got 6.1 million while the DPP garnered fewer than 4.9 million. Four years earlier, the DPP got 5.8 million votes while the KMT received nearly 5 million.

Prominent American observers of Taiwan such as Kharis Templeman at Stanford University and Richard Bush at the Brookings Institution were quick to claim that the results were not because of external factors linked to cross-Strait relations but were strictly because of domestic issues.

I beg to differ.

When Tsai Ing-wen ran for president in 2016, she ran on an uncompromising platform of independence for the island and Taiwan not being part of “one China.”

After she won the election, she tried to walk back from being out so far on a limb, but so long as she was unwilling to recognize the “1992 Consensus,” Beijing was not going to throw her a lifeline.

Her predecessor as president, the KMT’s Ma Ying-jeou, had quite willingly abided by the Consensus, meaning that both sides of the Strait believe there is “one China” but each side is free to make its own interpretation as to what that means.

With a one-China agreement under Ma, cross-Strait trade flourished and a healthy surplus accrued to Taiwan. Without that agreement under Tsai, mainland tourists stopped coming and trade slowed to a trickle.

Taiwan’s cream of the crop goes to Shanghai

A professor friend in Taiwan tells me that as many as 30% of the annual university graduates now leave an economically depressed Taiwan for the Greater Shanghai area to seek entry-level jobs and the start of their careers. The salaries are better and the future prospects more promising.

The best and most advanced Taiwanese companies have already established factories and service centers on the mainland, some have even completely moved off the island.

If the best and brightest talents have left Taiwan, for China or even the US, and if the most promising companies are focused elsewhere, then Taiwan is left with second-rate talent and enterprises, a mere shadow of its former “little tiger” self.

Tsai Ing-wen does understand what’s going on and has been making conciliatory gestures toward Beijing, but to recant and mouth the line, “I buy the one-China consensus,” is simply too much to ask for, and her hardcore support base would abandon her. She is indeed between a rock and a hard place.

Just as earlier president Lee Teng-hui tried to do in the late 1990s, Tsai is promoting the idea of Taiwanese companies expanding to the south and west, meaning the Philippines, Indonesia, Vietnam and Thailand.

But Taiwanese companies enjoy the advantages of common language and culture with the mainland, not to mention favorable policy; those advantages do not exist in other countries.

Just as it was under Lee, Taiwanese companies diversifying to other countries have not met with success.

So while American pundits like to hold up Taiwan as Asia’s shining beacon for democracy, the recent election result still boils down to one universal condition needed for democracy to succeed. “It’s the economy, stupid.”

Han Kuo-yu represents a new approach

No election result bears this simple truth more emphatically than the election of Han Kuo-yu as mayor of Kaohsiung, the second-largest city in Taiwan.

At the start of the election season, nobody gave Han a remote chance of winning, not even his own party, the KMT.

The DPP has been firmly entrenched in Kaohsiung for two decades. The KMT nominated a political nobody as a pro forma placeholder candidate and gave him no support. He literally was unemployed at the time he was picked to run.

But Han ran hard based on his promise to make Kaohsiung rich again and create jobs so that the young people don’t have to go to Taipei to look for employment.

Han won with 54% of the vote. He immediately declared that he looked forward to working with the mainland and regardless of Tsai’s position, he has no problem with the 1992 one-China consensus.

Other newly elected KMT mayors also declared that they were ready to follow Han’s lead and work directly with the mainland.

This election in Taiwan was an important lesson for Beijing as well. Past missile threats and rhetorical bluster only stiffen the Taiwanese people’s back.

The pro-independence Sunflower Movement born of resentment toward Beijing that disrupted the Ma Ying-jeou administration has been a non-factor in this election. Young people today are ignoring the Sunflower Movement as irrelevant. They are more concerned about their careers and making money.

Let the Han Kuo-yus of Taiwan show the people that working with the mainland is the win-win solution. The widespread recognition of the benefits of positive cross-Strait relations will bring both sides closer together until that day when de facto unification becomes a reality.

Friday, November 23, 2018

Will history remember the coming Trump-Xi dinner party?

This first appeared in Asia Times, Nov 17, 2018 

Whether it's hamburgers or humble pie, there is a strong chance the host will make a meal of it

 NOVEMBER 17, 2018 3:17 PM (UTC+8)
One of US President Donald Trump's favorite meals. Photo: iStock
One of US President Donald Trump's favorite meals. Photo: iStock
President Trump has invited China’s President Xi to stick around after the G20 Summit in Buenos Aires so that Trump can host a dinner party – “maybe hamburgers, maybe more; it’ll be just great, great,” he might have said.
Xi has tentatively accepted and the world can assume that the two leaders will engage in substantial conversation about the trade war, tension in the South China Seas and other subjects of deep concern to both countries.
While the Dow Jones seems to flutter up and down depending whether the pre-summit preparatory talks by officials are perceived to be going well or not, most observers following Trump closely are not expecting much to come out of the coming summit.
A major reason for low expectation is Trump’s notorious negotiating style. He says one thing and means another. He always reserves the right to abruptly change his position at any time.
This approach might have proven effective in his real estate dealings, keeping his competitor off balance, but is not any good for building trust and confidence with foreign countries.
He has also made a list of harsh demands and expects China to come to Washington, hat in hand, with a list of concessions in exchange for the privilege to sit down and negotiate. Trump seems to think the Chinese would accept his upside down process, namely for China to concede first, and then negotiate.

Trump objects to Made in China 2025

Probably the most surprising among all this is Trump’s indignation that he finds China’s Made in China 2025 “insulting” and demands China retracts the national plan.
Made in China 2025 is meant to be an aspirational document to encourage the Chinese people to aim high based on excellence in STEM and by the dint of their own efforts.
It’s puzzling as to why MiC 2025 is any of Trump’s business and that he should find it offensive.
Nothing in the document says anything about commandeering US technology or about pushing American heads under water in order to advance China.
Instead, it’s China that should feel offended that Trump finds China’s aspirations insulting. Instead of spelling out his own set of national aspirations to compete with China, Trump is trying to push the Chinese underwater as a way for the US to stay on top.
Thus we are left to speculate as to the possible outcome of the dinner discussion in Argentina. Will it presage the beginning of a cold war between China and the US? Or will it make some advances in the trade war negotiation?
The hostile tone of speeches given by Vice-President Pence as a stand-in for Trump suggests that the US is heading toward confrontation. He accuses China of militarizing the South China Sea. Yet it’s the American Navy that regularly patrols the water in the name of exercising Freedom of Navigation.
Apparently sending your warships thousands of mile away from your home base to sail around China’s territorial waters is friendly but for China to develop military bases on its offshore islands is unfriendly.

Hijacking intellectual property

Pence and the rest of Trump’s China team accuse China of forcing the transfer of intellectual property in order for US companies to do business in China.
It’s true in the early days when China joined the WTO, China as a developing country with backward technology was allowed to protect certain key industries. Protection included the requirement that the foreign company must form a joint venture with a Chinese company. In the process, foreign know-how was shared with the local entity.
There is no denying that the strategy was helpful for China to catch up. Now as the second largest economy with its mounting collection of native-grown intellectual property, China should no longer need to insist on forming JVs to access foreign technology.
Removing this stipulation as a condition for doing business in China would take away a sensitive bone of contention.
However, as usual, the Americans have blown the matter out of proportion and acted as if a denied access to IP from the US would cause China to dry up and wither on the vine.
An indication of Trump’s irrational arrogance is his policy to restrict visas for students from China. His rationale is that the students are there to steal national secrets and receive valuable training to bring back to China.
He is apparently ignorant of what elite American universities already know – that Chinese students make contributions far exceeding their numbers. Furthermore, most choose to remain and work in the US.
Trump’s new policy actually encourages the best and brightest to go back to China. His track record suggests that he likes to sock himself in the eye and then declare himself a winner.

Trump: trade surplus is evil

Trump’s original trade dispute with China rests on the simplistic idea that anyone enjoying a trade surplus with the US is “insulting” and must be stealing from the US.
In his ideal world, each trading partner would sell to the US no more than what they can buy from the US, a ludicrous and impractical proposition that makes no sense economically.
In one of the early discussions, the US side demanded that China buy more from America to reduce the trade surplus by US$100 billion. Upon looking around, the US negotiating team to their chagrin discovered that China may be ready to buy, but the US doesn’t have enough products to sell.
In Trump’s view, China’s top-down allocation of resources in favor of state-owned enterprises give the SOEs unfair advantage in competing with American companies without such a subsidy.
Actually, a recent report by the Rhodium Group for the Asia Society revealed that SOEs make up only 5% of all the companies in China, but account for 28% of the industrial assets and generate only 18% of the total profits. Their return on assets is a woeful 2.9% vs 9.9% for private enterprises. At a minimum, Trump’s fear of China’s SOEs has been misplaced.
As president, Trump has materially changed the bilateral conversation with China. As Hank Paulson pointed out in his speech in Singapore, Trump is leading the US on a divergent path away from China.
Rather than seeking to work together based on common interests, the US is putting down China as best as it could. For example, the White House is clearly intimidated by China’s Belt and Road Initiative.

Pence: Beware BRI projects

Pence, in particular, has been going around warning third world countries of China’s predatory financing associated with the BRI projects.
It’s true that the BRI projects in Sri Lanka did not work out. But Sri Lanka was an exception. Most third world countries continue to want to be part of China’s BRI. However, the negative publicity should prompt China to calculate the financial viability of every new project with more care.
On the other hand, projects financed by the Asian Infrastructure Investment Bank have followed the discipline of World Bank financing. AIIB founded by China has a multinational staff and practice of transparency.
To date, India has been the largest beneficiary of BRI projects funded by the AIIB, and there have been no complaints about predatory terms.
In his speech, Paulson notes that there are no winners in a trade war and suggests that Trump is dropping an iron curtain between China and the US, and forcing other countries to choose sides.
China offers collaboration and assistance on infrastructure projects along with free and open trade. The US is known to focus on “America first,” and does not have a priority to help others. If forced, which side do you think these countries would choose?

Navarro takes on Paulson

In response, Peter Navarro proclaimed that the US was winning the trade war with China and President Trump does not need shuttle diplomacy. Clearly, in reference to Paulson, Navarro said: “Wall Street, get out of those negotiations.”
Before Paulson became the US Secretary of Treasurer under the George W Bush administration, he was chairman of Goldman Sachs. He worked closely with China’s leadership during the financial crisis of 2008 to prevent the total collapse of the US banking system and the global economy. His credentials are well established.
Navarro’s credentials? He was five times loser for political office and in one post-election pout, he said: “I don’t have any concerns at all about making stuff up about my opponent that isn’t exactly true.” Sound familiar?
For Trump’s 2016 campaign, Navarro co-authored with Wilbur Ross an economic roadmap on dealing with China. A public letter signed by 370 economists including 19 Nobel laureates called the plan an unmitigated disaster. So true, now the disaster is nigh.
Aside from keeping Trump’s boots in spit shine condition, Navarro has apparently been Trump’s main China whisperer as well as running around unilaterally declaring that the US is winning the trade war.
Other than finding demonizing China a lucrative profession, he does not have much else of a track record. Supposedly, to bring manufacturing back to America, Navarro has been tasked to import and recreate the many supply chains and put them back in the US. Want to bet if he can do it?
California winemakers, Iowa soybean farmers and Maine lobster fishermen are among many businesses wondering when and how winning this war is going to give them the business they used to enjoy with China.

Wednesday, November 21, 2018

Life of Anson Burlingame, a Celebration


On Friday, November 16, 2018, a ceremony to honor the memory of Anson Burlingame was held at the library of the city of Burlingame, the Bay Area city named after him. This is a project my friend David Chai and I have been working on for many years. It’s most gratifying to see this come to being. His contribution to the US China relations has been unique in the history of modern civilization.

One local coverage is https://www.burlingamevoice.com/

A national coverage in the Chinese language is http://video.sinovision.net/?id=47573

A Silicon Valley coverage on Dingding TV is https://youtu.be/lMZPwpC4azk

A full set of photos taken by the Burlingame city photographer can be seen at https://drive.google.com/open?id=1HxJD37SnslIcDG_BVt4nyVWWozwxqBo5

As reported in online Asia Times
http://www.atimes.com/tribute-to-anson-burlingame-ambassador-to-and-from-china/


Part of the standing room only audience
Co-instigators David Chai and George Koo with sculptor Limin Zhou (center)

Mayor Michael Brownrigg









Text Box:

Wednesday, November 7, 2018

Pick Trump apart before the mid term

This first appeared in Asia Times, written before the mid term election.


His abrupt withdrawal from the Paris Accord, despite 195 signatories, is a clear indication that Trump does not care a whit what the community of nations thinks. Democrats should explain to the voters that reducing the emission of greenhouse gases is the most pressing universal challenge facing today’s world.

Abruptly breaking the nuclear weapons ban of 40 years with Russia without any replacement scheme is another dark side of unilateral action. In effect, by renewing the arms race, Trump has made the world a more dangerous place. At the same time, expenditures for a new arms race would add to the federal budget deficit.

Cold War footing

Trump has also deliberately placed China on a new Cold War footing; far from putting America first, his approach will end in self-inflicted losses. Vice-President Pence summarized the anti-China position in his speech early in October.

Just like his boss, Pence accused China of holding a huge trade surplus and forcing American companies to transfer their technology to China. Pence also accused China of having the audacity to “manipulate” the American election.

How? By using inserts in Iowa newspapers to explain that the consequences of Trump’s trade war would be harmful to the farmers’ livelihood.

Put Pence’s accusations together, even if cast in its worst light and without checking against reality, hardly seem to justify threatening to go to war with China.

Very simplistically and flying in the face of basic economic principles, Trump believes that China’s trade surplus is evidence of stealing from the US.  In other words, global free trade is actually a conspiracy against America first.

Trump believes imposing tariffs will solve the “unjust” trade balance. He has even declared that tariffs collected on imports from China would be new revenue to the US Treasury – a source of free money to Trump.

In reality, of course, the tariff would be paid by the importer and passed on to the end consumer in the form of a price increase. Far from free, the tariff represents a new tax for American consumers and taxpayers.

A large portion of imports from China is either made for American companies by contract manufacturing arrangements or by American corporations operating in China. The tariffs would raise the cost of the imports back to the US, but Trump believes that the tariff barrier would encourage American corporations to bring their manufacturing back to America from China.

A naive assumption

Trump’s assumption is naive. The US may no longer have the workers with the needed skills or workers willing to work under the comparably low wages paid in China. Furthermore, manufacturing in China enjoyed complementary supply chains of intermediate products that no longer exist in America.

Even for those operations that could be brought back to the US, it would take time to reestablish and a disruption in the market and to the American economy would be unavoidable.

Trump’s style of trade negotiation is to list demands coupled with the threat of tariffs. The approach may have intimidated Mexico and Canada, but it has not worked with China. He first imposed tariffs on a list of items and was offended that China did not immediately surrender but had the gall to retaliate with their own list of tariffs.

When the tariff war began, China’s stock market tumbled and Trump’s economic team immediately crowed that China was losing the trade war and victory for the US. Recently, it’s the American stock markets’ turn to tumble while China’s held steady. The reality is that short-term stock market fluctuations simply reflect that a long-term lose-lose scenario is in the making.

The Democrats need to explain to the American voters that imposing tariffs will cost everybody more money. American industries that depend on import of materials and intermediates will have to pay more even if the imports do not come from China simply because imports from other countries will raise their prices to match the Chinese competition with the newly added tariff.

Americans will have to pay more for their daily household items from China because of the added tariff. Even if there were competing imports from other countries, those imports would adjust their prices to reflect the new price from China including the added tariff. The net effect is that the tariff raises the cost of living for everybody.

The Democrats should simply ask: How is this going to help the US? There are plenty of domestic issues that need attention: repairing infrastructure, raising education standards, reducing gun violence and combating drug addiction, to mention a few. Why start a new Cold War to add to the list?

Of course, to become credible critics of Trump’s policy toward China, the Democrats would have to disclaim having been guilty of demonizing China, or at least explain that they see the error of their biases and that making China an enemy is not in America’s national interest.

Monday, October 15, 2018

A View of China not Understood in the US

I gave a presentation to a high school teachers' workshop in the Bay Area in August 2013. Reviewing the presentation, I find that most of the material are still relevant today.

https://www.youtube.com/watch?v=DpXijxDVDgk&t=328s

Fake Conversation about Jamal Khashoggi

King Salmon: Hello.

Operator: This is White House operator, please hold for President Trump
DJT: Hello, King. Wonderful to hear your voice, just great, great.

KS: What can I do for you?

DJT: I am calling about this Ja-, Jamal Khashoggi. You know what the Turkish government folks are saying, don't you?

KS: No what? I don't know anything about this Khashoggi.

DJT: They are saying that he went into your consulate in Istanbul and never came out. They think he was killed inside.

KS: Can't be. My people said he left within one hour.

DJT: The Turks said 15 Saudi nationals flew into Istanbul in two separate jets from Riyadh just before Khashoggi came into your consulate.
DJT: They are saying that your hit squad killed him and used bone saws to dismember him and carried his body parts back to Riyadh.

KS: Impossible. Khashoggi left on his own accord.

DJT: Hey King, I am afraid I can't convince my Congress of that story line. How about if I say some rogue killers did the dirty deed?

KS: Rogue killers? Yeah, that will be OK.

DJT: Which of the two planes did the rogue killers came in?

KS: Er, ah in both planes.

DJT: I think I can convince the American people that some rogue killer did the job.

KS: Thank you. We must maintain our country to country relationship.

DJT: Absolutely. By the way, our $160 billion arms deal is still on, right?

Monday, October 8, 2018

Comment on Secretary State Pompeo's visit to Beijing

Pompeo made a visit to North South Korea, Japan and China. I was asked to comment on his visit to Beijing on CGTN on October 8.

https://youtu.be/BixOSI4PyBs

Less than a week later, I was asked to comment on Premier Li's trip to Tajikistan and Europe and on Shanghai Cooperation Organization.

https://youtu.be/zLQRDy15cyM

Thursday, October 4, 2018

China’s smartphone is paving the way to AI supremacy

I wrote the short piece below in early September to help publicize Kai-fu Lee's book and speaking tour.


Artificial intelligence (AI) used to be a popular sci-fi topic but the idea that the computer can do things that the human cannot, took a lot longer to come into reality.  Even today, AI is far from perfect; a self-driving car can still run over a pedestrian.

However, thanks to the development of deep learning in AI, Waymo, the self-driving startup spun off from Google, is already valued at well over $1 billion despite not yet having a commercial version that would replace the driver behind the wheel. Deep learning is the concept that the algorithm can self improve based on the date fed into the AI program. This is why Waymo vehicles constantly drive around Mountain View to generate more data and thus keep refining the computer model intended to replace the human driver.

According to Kai-fu Lee, within the last three years, deep learning has also enabled China to catch up to Silicon Valley in AI. Lee has just written a new book entitled, “AI Superpowers: China, Silicon Valley, and the New World Order,” in which he explains that China’s adoption of the smart phone and mobile computing has allowed China to catch up to Silicon Valley and in some situations even surpassed Silicon Valley.

Today 800 million smart phones in China are used in many more ways than in the US and thus can generate orders of magnitude of more data for their applications based on AI. For example, the smart phone in China can serve as a digital wallet to send and receive money. The homeless sitting on the sidewalk can panhandle by dangling the computer code for the passersby to scan by phone if they wish to donate to the panhandler’s bank account. The AI algorithm may not be as powerful as that written in Silicon Valley, but the availability of vast amounts of data can more than make up the difference.

After getting his PhD in AI from Carnegie Mellon, Dr. Lee joined Apple and led the development of the voice recognition system that became Siri. This was even before Steve Jobs rejoined the company. He then went to China to start R&D centers for Microsoft and Google before becoming a leading venture capital investor of AI startups in China. He is certain that AI will be as revolutionary to the world as the steam engine that led to the first industrial revolution and electricity to the second.

As part of his book tour, Dr. Lee will visit the Bay Area to talk about AI, the strides China has made and the implications for the world. He will speak at the Santa Clara Convention Center on September 26, jointly sponsored by The Committee of 100, The Commonwealth Club and NACD, northern California chapter. Go to
https://mailchi.mp/committee100/committee-of-100-upcoming-event-speaker-series-with-kai-fu-lee-on-ai?e=a984dceae2
For more information and to register.

The author is a retired international business consultant, a member of Committee of 100 and occasional contributor to online Asia Times.

Saturday, September 1, 2018

Leapfrog for Cchina to catch Silicon Valley in AI



Edited version first appeared in Asia Times.

Kai-fu Lee’s book on artificialIntelligencehttps://www.amazon.com/AI-Superpowers-China-Silicon-Valley-ebook/dp/B0795DNWCF will be published by Houghton Mifflin Harcourt in September and Dr. Lee is already scheduled to make several appearances in the Bay Area to talk about his book around the last week of September.

The full title of his book is “AI Superpowers: China, Silicon Valley, and the New World Order.” In his book, Lee makes the startling contention that within the last three years, China has caught up to Silicon Valley in AI. And, no, Mr. Trump, it’s not because the Chinese has stolen the algorithm from Google. Rather, China leapfrogged the US in mobile computing, which enabled China to take a different path to AI nirvana.

Dr. Lee is one of the pioneer creators and thinkers of artificial intelligence. After he obtained his doctorate degree in AI from Carnegie Mellon, he joined Apple in Cupertino to develop the voice recognition system and then left for China to build research centers of excellence for Microsoft and Google. Now he is the premier venture capitalist investing in AI startups in China.

Nowadays, artificial intelligence has become part of daily conversation, even if not everyone understands what AI is all about. Wall Street considers AI to be the latest winning investment in technology following the Internet and the smart phone. Lee believes development of AI is even more profound than that, equating the future impact of AI on the human civilization to be as fundamentally revolutionary as the invention of the steam engine that ignited the first industrial revolution and electricity for the second.

Deep learning raised the power of artificial intelligence

AI became a real emerging technology when researchers moved machine learning to the next level called “deep learning.” Properly designed algorithm, called neural network, can learn to fine tune its algorithm by repetitive trial and error calculations, at lightening speed, until the best solution is derived based on the data set fed to the algorithm. The bigger the data set that’s fed to the algorithm, the better is the resulting optimization and solution.

The importance of big data, explains Lee, has allowed China to close the gap with Silicon Valley in AI because China generates much more useful and higher quality data than in the US. Lee credits Steve Job and the introduction of the smart phone as the event that pushed China into AI development.

Observers in the West may not have noticed that as China’s economy grew at dizzying rates in the 40 years since reform began, the country leapfrogs certain crucial development along the way. Telecommunication is one such example. When China began its economic reform, its telecommunication network was woefully inadequate. The country was so under invested in copper wire lines overland that it was easier for the consumer to adopt the mobile phone rather than waiting for the allocation of a landline.

The smartphone facilitated China’s entry into AI

When Apple introduced the iPhone in 2007, China already had the largest number of mobile phones users in the world, and the users were primed to upgrade to a smartphone, albeit not always an iPhone but a lower priced, domestically made alternate. At the time most Chinese did not own a computer at home and the smartphone gave the Chinese user Internet access bypassing the need to buy a computer.

Chinese entrepreneurs quickly learn to develop apps specifically for the smartphone. For example, being decades behind the West, the use of credit card never really took off in China. Now with WeChat, considered a “superapp” by Lee, the smartphone can be linked to the owner’s bank account and the phone becomes a digital billfold able to make and receive payments.

The American AI monitors the user preferences such as what website the user visits. In China, Tencent, the owner of WeChat, can gather data not only on what the user looked at, but what he/she bought, from whom, where and when. The data collected is much higher quality and multi-faceted. In addition, China has at least 3 times more users generating data for feeding into AI optimization than in the US.

The author argues that while China remains behind the US on the creative side of writing AI algorithm, China has been closing the gap and in some aspects surpassing Silicon Valley for certain uses of AI. This has occurred within the most recent three years because China has been gushing high quality data derived from the smartphone.

Data drive the AI virtuous cycle

The vast quantity of quality date is helping China refine their AI, which helps to improve the product offering, which increases customer acceptance, which generates even more data to optimize the AI program. Lee calls this the virtuous cycle of AI whereby the availability of date would allow an inferior AI algorithm to surpass the performance of a superior AI that do not have access to as much data.

One example would suffice to illustrate the difference between China and the US. A program in China called Smart Finance has used AI and access to the user’s smartphone to determine the creditworthiness of the individual and grant the user a personal loan. No collateral, no credit report, no personal references, and no banking information are needed. And the single digit loan default rate is the envy of commercial banks.

Apparently AI correlation of hundreds of data points residing in the smartphone (Lee calls them weak features) can more accurately evaluate the reliability of the borrower, even if no human banker can fathom why. The iteration of AI over millions of smartphones have established predictive rules and the accuracy will only improve with use—and default becomes even more uncommon.

While ground breaking AI research will continue in the US, China is graduating upwards of a million AI engineers every year. They are motivated and will work long hours to find new products and services based on AI solutions. And the access to huge amount of data will more than offset their not being as good in designing the algorithm.

China’s leadership recognizes the importance of AI and has allocated financial support to encourage and further AI research. The US? Not so much federal support and America will continue to depend on private sector efforts. Private sector AI will remain proprietary and be kept behind closed doors.

The author does not express much anxiety over the possible rivalry between the US and China. He is much more concerned with eventual advances in AI that could lead to wide spread displacement of human by machines. Owners of the powerful AI could become members of a small elite class that enjoy all the wealth and status while an “useless” class of masses can no longer generate enough economic value to support themselves.

This is where Lee becomes very personal drawing from his own dramatic experience as a cancer survivor. He suggests that no matter how advanced AI becomes, it can never replace human interaction that offer love and compassion. He proposes that we begin to prepare for the day by placing higher priority and monetary value for socially beneficial activities. In other words a drastic and basic reordering of our value system based on humanity.

His book is a thoughtful treatise on the possible benefits and destructive damages AI poses to the world. Anyone wanting to understand the downside of unbridled AI advances on the humankind will find relevant questions and answers in this book.
The Committee of 100 is the cosponsor with the Commonwealth Club of Dr. Kai-fu Lee’s speaking engagement in Santa Clara on September 26. Go to here for more information. Dr. George Koo is a retired China business consultant and a regular contributor to online Asia Times.