China’s AI price war and Japanese who ‘don’t know how to use it’

Hello from Yifan in California, your #techAsia host this week. I’ve just come back from the Independence Day holiday, which officially kicked off the summer season.

I attended several July 4th and summer parties in Silicon Valley over the past few weeks. While AI is still the hottest topic in town, the approaching US presidential election has also come up at almost every conversation I had or overheard.

While California remains a deep blue state, Silicon Valley has split over Biden and Trump in the past few years, as some in the traditionally liberal tech industry started to lean right following the Covid-19 pandemic and social justice movements such as Black Lives Matters. The shift was led by tech billionaires including Elon Musk, who has spoken out against so-called woke culture.

But neither presidential candidate was particularly popular at the parties I attended, and one of the reasons is their lack of a plan to govern the rapidly developing field of artificial intelligence. The tech industry never likes regulation, but as one founder of an AI start-up said to me: “No industry can thrive without regulation in the long run. It’s mayhem.”

As AI becomes more prevalent and more powerful, the US needs a concrete road map to govern the technology, something neither Trump nor Biden has offered.

After President Biden’s less than stellar debate against former President Trump, calls for a new Democratic presidential candidate have been growing. Vice-president Kamala Harris, who some see as the most likely replacement if Biden decides to pull out of the race, has been leading the administration’s AI regulatory effort, including attending a global AI safety summit hosted by the UK last year. The US might embark on a clearer path to federal AI regulation if Harris ultimately ends up in the White House.

Whoever is elected, however, Washington’s goal to outcompete China in tech will not change, nor will the crackdown on the country’s access to American AI technologies. ChatGPT developer OpenAI recently notified users in China that they would be blocked from using its tools from July 9, and some lawmakers are even pushing for export controls on open source AI models.

Will such moves hinder China’s AI development, or inadvertently spur the growth of its homegrown developers? We will have to wait and see.

Cut-price AI

While much of the world is still trying to figure out how to commercialise artificial intelligence, a price war among builders of AI models has already begun in China. OpenAI’s decision to block all access from the country has fuelled the race among Chinese internet titans and startups to fill the gap.

Companies like Alibaba, Baidu, TikTok owner ByteDance and various startups are competing to offer a lower price per 1mn tokens, tokens being a unit used to measure the number of words in a query or response, Nikkei Asia’s Wataru Suzuki writes.

Slashing prices might help with revenue generation, but it doesn’t help with profitability. How sustainable can a price war be when AI’s road to profit is still unclear?

Funding firepower

Neil Shen, China’s most powerful tech investor, has defied a funding freeze to raise the largest fund by a privately owned venture capital firm in China in the past year.

The Financial Times revealed this week that his venture firm, named HongShan since the split, raised an Rmb18bn ($2.5bn) fund this year, write Tabby Kinder and Eleanor Olcott.

It is the firm’s seventh yuan fund and comes almost exactly a year after it split with Sequoia Capital.

Shen raised a $9bn dollar fund in 2022, but has struggled to deploy that capital given the heightened geopolitical tensions between Washington and Beijing, including proposals by President Joe Biden last month to ban US investment in sensitive Chinese technologies such as artificial intelligence, quantum computing and chips.

Shen’s latest yuan fund gives him greater firepower to deploy in Chinese startups, including in those sensitive industries.

Who’s using?

Many of our #techAsia readers might take using AI for granted at this point. From ChatGPT to Microsoft CoPilot, generative AI tools have quickly become an essential part of our lives.

However, only 9.1 per cent of people in Japan are using generative artificial intelligence, Nikkei’s Kensuke Watanabe reports.

According to the 2024 White Paper on Information and Communications released by the Japanese government, Japan is falling behind in individual adoption of generative AI. In contrast to Japan, 56.3 per cent of respondents in China, 46.3 per cent in the US, 39.8 per cent in the UK and 34.6 per cent in Germany reported using generative AI.

The most common reason for not using generative AI in Japan was that people “don’t know how to use it”, cited by more than 40 per cent of the survey respondents. Almost 40 per cent of people also said generative AI “is not necessary in my everyday life”, higher than in the other four countries.

An appetite for Turkey

China’s BYD will invest $1bn in Turkey to set up an EV and plug-in hybrid vehicle factory with an annual capacity of 150,000 units, creating a second European production and export hub after the one it is building in Hungary.

This will be the first EV factory owned by a foreign manufacturer in Turkey. The facility is slated to begin production before the end of 2026 and is expected to employ 5,000 people, Nikkei’s Sinan Tavsan writes.

The news came after the European Union decided to impose sharply higher tariffs on electric vehicles imported from China. The higher duties have temporarily taken effect while negotiations between Beijing and the 27 nations bloc continue. A definitive vote by member states will be held in October to decide whether to lock in the rates for the next five years.

Suggested reads

1. Nvidia to make $12bn from AI chips in China this year despite US controls (FT)

2. China hopes senior citizens can spend the country out of its doldrums (Nikkei Asia)

3. Australia accuses China-backed hackers of breaching government networks (FT)

4. Japan’s AI unicorn to use Samsung’s 2-nm chip production tech (Nikkei Asia)

5. Samsung Electronics hit by unprecedented 3-day strike (FT)

6. Vietnam opens cloud, data centre market to foreign companies (Nikkei Asia)

7. Pakistan’s rooftop solar boom shines spotlight on power crisis (Nikkei Asia)

8. How Saudi Arabia’s MBC came to dominate Middle East streaming (FT)

9. Sony and other Japan chipmakers to spend $30bn in production race (Nikkei Asia)

10. SoftBank to prioritise AI deals over share buybacks despite pressure from Elliott (FT)

#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.

Sign up here at Nikkei Asia to receive #techAsia each week. The editorial team can be reached at [email protected].