Li Yuan 

The acquisition this month by ride-hailing company Didi Chuxing Technology of Uber Technologies' China operation was a reminder of how strong Chinese tech companies have become domestically at outmaneuvering foreign rivals.

But the biggest buzz in China's internet industry isn't about besting global tech giants by better adapting existing business models for the Chinese market. Rather, it's about competing head-to-head with the U.S. and other tech powerhouses in the hottest area of technological innovation: artificial intelligence.

Venture capitalists have been pouring money into startups focused on AI, which broadly refers to efforts to make computers emulate human cognitive functions such as recognizing speech or images. Chinese tech companies such as search giant Baidu have been investing heavily in the technology, and poaching high-level talent from foreign rivals.

Enthusiasts of the technology in China say those resources, along with some particular advantages in China, such as the sheer volume of data generated by its enormous population of internet users, makes this an area where China can excel.

"China is poised to be a leader in AI because of its great reserve in AI talent, excellent engineering education and massive market for AI adoption," says Kai-Fu Lee, a former Microsoft and Google executive who is now chief executive of Sinovation Ventures. The firm, formerly known as China's Innovation Works, has invested $100 million in 25 AI-related startups in the U.S. and China in the past three years.

AI's application in business is at a relatively early stage globally, and it's still too early to predict the victors. Deep-pocketed U.S. tech titans including Microsoft, International Business Machines and Google parent Alphabet also are plowing resources into AI. Google made a splash in that area earlier this year when its AlphaGo AI machine beat a South Korean grandmaster at the chess-like game of Go.

But Chinese AI experts are winning international accolades, too. MIT Technology Review listed Baidu as No. 2 on its list of the 50 smartest companies in 2016, after Amazon.com. The editors cited the Chinese company's AI work, particularly in speech recognition, where it's teaching its system to process spoken words sometimes more accurately than people can.

Baidu said Wednesday that its speech-recognition software performed three times faster than humans for English language, with a lower error rate, in a joint experiment the company did with Stanford University pitting the software against 32 people typing text on smartphones.

Baidu's Institute of Deep Learning set up a Silicon Valley lab in 2013 so it could compete with Google, Apple and Facebook for talent. Baidu's AI efforts today are headed by Andrew Ng, an adjunct professor at Stanford who led an AI project at Google and co-founded online-education company Coursera before Baidu tapped him as chief scientist in 2014. Mr. Ng says he joined Baidu because of its early and intense focus on AI.

Beyond optimizing its search engine and enhancing its ability to recognize voice, Baidu also is applying AI to automobiles, aiming to mass-produce a driverless car in five years. The company last year spent 10.2 billion yuan ($1.5 billion), or 15% of revenue, on research and development, of which AI is a crucial part. By comparison, Alphabet spent $12.3 billion on R&D, or 16% of revenue.

An advantage Chinese companies have is an enormous internet-user base of nearly 700 million -- a pool that's largely off-limits to foreign companies such as Google because China's government blocks many of their services. More users and more usage mean more data. And China generally has weaker data-protection rules than the U.S., industry insiders say, making the information even more valuable. "In AI, if you have a lot more data, you'll be standing at a much higher starting point," says Sinovation's Mr. Lee.

The relative lack of technological sophistication in China's traditional industries also gives AI companies opportunities in China that can help sustain startups. 4Paradigm Data Tech, founded by a former Baidu deep-learning programmer, has in just a year amassed more than a dozen banking and insurance customers, including state lenders such as China Merchants Bank. 4Paradigm helps customers develop AI software to match customers and services more efficiently.

Didi's founder and chief executive, Cheng Wei, is among those advocating that China focus intensely on AI. Speaking to government officials and administrators in May, he said the first half of the internet age -- in which companies raced to connect computing machines with people -- has finished. "The second half is about artificial intelligence," he said.

Didi, which raised $7.3 billion in its latest fundraising effort in June and had about $10.5 billion in disposable funds, has established a Didi Research center to focus on AI technologies including machine learning and computer vision. The company hopes the technologies optimize its dispatch system and route planning. A few hundred scientists work on the deep-learning technologies, it says.

For Mr. Cheng, competition with the U.S. in AI has significant implications. In his speech, he said China missed opportunities to build its own successful operating systems for computers and smartphones, areas dominated by Microsoft, Apple and Google. He warned his audience not to miss the next opportunity in driverless cars, which use AI to enable navigation.

"Google's driverless technology leads the world, and autonomous driving is the operating system of cars," he said. "If we don't stand up to [the] challenge, we may have to use American technology [again] in the future."

--Follow Li Yuan on Twitter @LiYuan6 or write to li.yuan@wsj.com.

 

(END) Dow Jones Newswires

August 25, 2016 02:48 ET (06:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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