by Parag Khanna
Thailand is a good example of a middle-income Asian country where all of these forces are coming together. Thailand already has a strong manufacturing base, with exports growing in the double digits annually, but its productivity remains low. Realizing that a slowdown in exports to China has made its economy vulnerable, the military government cut red tape for investment so more foreign firms could come in and train a higher-quality labor force. It also loosened credit for SMEs so they can afford better computers and skills-training courses. Now it is offering its own automated “Industry 4.0” facilities to companies from the country that invented the mantra—Germany—so its engineering heavyweights can continue to save costs in Asia and be closer to their customers. As a result, Thailand’s trade-to-GDP ratio has now climbed above 120 percent, while through similar strategies Vietnam’s has climbed to 200 percent.
Though Asia remains the core of global industrial output, automation has become a far greater threat to employment than US tariffs and nearshoring (relocalizing production to America and Europe). Automation is unfolding in the West and Asia at the same time. Amazon and Alibaba both have robots sorting millions of products across their facilities. Universal Robots (UR), a Danish manufacturer of lightweight multitasking robotic arms, reports double-digit annual growth in Asia. GreyOrange, a robotics company based in Singapore and New Delhi, has two warehouse robots named Butler and Sorter that stock shelves and load hundreds of thousands of parcels per day, eliminating the cheap manual labor on which India’s logistics sector has thrived for so long. GreyOrange’s partnership with Flipkart (originally backed by SoftBank, Tiger Global Management, and Tencent but now owned mostly by Walmart) will help it survive against Amazon’s aggressive incursion into India, allowing managers to focus less on head count and more on quality control. Rapid growth has meant that Asia’s expanding sectors are not cannibalizing one another, as is happening in the West, where shoppers’ move to Amazon is leaving shopping malls empty and Google and Facebook are crushing print newspapers. In Asia, e-commerce is surging but malls are full, and newspaper presses are churning despite fast-growing mobile advertising. There is a rising demand for everything, both physical and digital.
Asia thus has every intention of retaining the world’s manufacturing supply chains, even if robots perform a growing share of the labor. South Korea currently leads the world in industrial robotics, with nearly 500 robots per 10,000 manufacturing workers compared to 300 in Japan and Germany and just 36 in China. South Korean workers can also wear exoskeleton bodysuits that allow them to perform more difficult tasks for longer periods with less physical stress. As its working-age population shrinks through aging from 1 billion people in 2015 toward 900 million by 2030, China is spending massively on industrial automation to plug its growing labor gap, buying both the machines and the foreign companies that make them. In 2017, the Chinese appliance giant Midea paid $6 billion for more than 85 percent of Germany’s Kuka Robotics, one of the biggest makers of industrial robots in the world. Foxconn’s spin-off Foxconn Industrial Internet, which automates factories, is now more valuable than Sony. Automation will enable China to save on labor costs, raise productivity, and boost its competitiveness against the very countries that have pioneered automation.
Even China’s most open sectors such as automobile manufacturing have become emblematic of how local competition drives the market. For two decades, Volkswagen and Toyota led car sales in China, albeit through joint ventures that entailed substantial profit sharing. Today, the Hangzhou-based Geely designs and builds vehicles to European standards, not least because it owns Volvo, Lotus, and 10 percent of Daimler, which it brought in to build a $2 billion plant dedicated to high-end cars.47 It is also spending 15 percent of its revenue on R and D—including a venture with the Dutch sensor maker NXP Semiconductors to develop in-vehicle telematics—accelerating its plan to displace foreign carmakers and increase its own car exports globally. Xi Jinping has promised that US carmakers will have greater access to the Chinese market, but why would Chinese buy American cars?
China’s $300 billion Made in China 2025 initiative aims to upgrade Chinese industries to become self-sufficient in areas such as aircraft components, computer chips, and medical devices, while raising productivity in engineering, health care, food processing, and other sectors.48 Episodes such as the Trump administration blocking the sale of equipment to the telecom giant ZTE in 2018 have only motivated China further to push for technological self-sufficiency. As China has become the largest market for semiconductors, it has launched the $20 billion China Integrated Circuit Industry Investment Fund Company to spur Chinese firms to achieve the ultrathin 14-nanometer chips made by firms such as Samsung and Intel. In 2017, Xiaomi abandoned Qualcomm chips and deployed its own Pinecone chipset, breaking its reliance on foreign providers. China’s organic light-emitting diode (OLED) display maker BOE Display plans to deploy rollable displays by 2021. To the extent that China relies on high-tech imports, it acquires more advanced technology through trade with Europe, Taiwan, Japan, and South Korea than it does from the United States; hence the Trump administration’s anti-China measures are not likely to meaningfully slow down the Made in 2025 initiaitve.
To maintain its edge over China, South Korea is training workers to deploy and manage high-end sensor networks. Such technical and business services represent the frontier of productivity in advanced economies, while their financial and industrial conglomerates generate substantial offshore revenues by aggressively exporting their innovations—especially to their Asian neighbors. According to the World Intellectual Property Organization’s Global Innovation Index, Singapore and South Korea are two of the most competitive economies in the world, owing considerably to their deployment of technology in the workplace and their upskilling programs. In 2017, Samsung overtook Intel as the world’s largest semiconductor supplier and edged out IBM for the most patents filed. In 2021, South Korea will open the International Science Business Belt in Daejeon, a complex encompassing eighteen universities, science parks, research centers, and a heavy ion accelerator.
Both the United States and the European Union are struggling to find ways to counter Asia’s aggressive innovation strategies and commercial practices. Both have taken a strong line at the WTO against Chinese dumping of subsidized steel and chemicals on global markets and have become more restrictive about foreign investment in sensitive technology sectors. The US Congress (through its Committee on Foreign Investment in the United States) has blocked numerous Chinese attempted acquisitions of US high-tech companies (such as the semiconductor manufacturer Lattice Semiconductor and the memory chip maker Micron Technology), financial firms (such as MoneyGram), and the Chicago Mercantile Exchange and added stringent export controls on US companies selling advanced technology with military applications. Though this might slow down intellectual property (IP) acquisition by Chinese companies—whose IP thefts cost US companies an estimated $600 billion per year in lost profits49—it also reduces US exports at a time when Asian companies are aggressively promoting their own tech products. US companies thus want these mergers to move forward in order to enhance their market access to China and to piggyback on China’s presence globally. MoneyGram thus plans to continue its partnership with Ant Financial to provide remittance and digital payment services internationally. It is too late to slow any of Asia’s efforts at economic enhancement.
Asia.ai: Upgrading Societies
The history of technology flowing from Asia to the West is a reminder that science and technology don’t belong to anyone. Western narratives have long derided Asian cultures as being merely copycats. But innovation is not just about scientific invention but about societal adaptation. Whether Asia is just catching up (as in life expectancy and nutrition) or racing ahead (as in mobile finance), it is adopting the latest technologies such as robotics, sensor networks, and synthetic biology. From blockchain to gene editing, success and advantage won’t be determined by who is rich or poor, democratic or nondemoc
ratic, but rather who best scales new technologies and business models.
As every society in the world faces varying degrees of technological disruption, one crucial factor Asians have in their favor is psychological: they are not afraid of new technology. They think of it not as a master but a service. Since the Meiji Restoration, Japan’s rulers have been fascinated with technology, and today the Japanese are far ahead of other societies in human coexistence with robots in the home and workplace. For Japanese, robots connote the cuddly Astro Boy, not the destructive Terminator. From sensors embedded everywhere to bioenhancement, Asians are investing in the future without fearing that it will destroy them.
Asia’s accelerating R&D spending is translating both into home market dominance as well as success abroad. China has ramped up its R&D spending to a level commensurate with its GDP size, contributing 20 percent of world R&D spending and accounting for a similar percentage of the global number of scientific researchers and publications. China represents about half of Asia’s R&D expenditure by volume at $409 billion, with Japan at $190 billion and Korea at $120 billion, followed by India at $67 billion and Russia at $43 billion. Three of the world’s top ten patent-filing hubs—Tokyo, Osaka, and Nagoya—are in Japan, ahead of Shenzhen and San Jose. Korea’s bandwidth speeds are so fast that the country is effectively a cloud-first nation. And by mandating that download and upload speeds be equally fast (rather than privileging download), South Korea has become a nation not just of cultural consumers but of producers, with content spread and adapted across Asian language markets.
Seoul, Taipei, Singapore, Tokyo, Shanghai, and Shenzhen rank among the world’s most high-tech cities. Each major Asian tech hub has a niche edge emerging from its ecosystems: Tel Aviv excels in cybersecurity, Singapore in fintech, Tokyo in robotics, Shenzhen in sensors, and so forth. Other places such as Dubai aren’t scientific pioneers but make themselves regulatory test beds for everything from drones to driverless cars. Asia’s cities lead the world in the deployment of sensor networks for the urban Internet of Things, lifting Korea’s semiconductor exports 55 percent from 2016 to 2017. Now such sensor networks as well as energy-efficient LED lights are being installed in second-tier areas such as India’s Bhopal. In China’s Yinchuan, trash bins double as compactors run by solar power, with sensors alerting trash collectors when to empty them. Asia is also the site of important experiments in optimizing cities by size. Where cities have become too large and congested, such as Changsha, the government has attempted to motivate people to shift to second-tier cities to distribute the population better.50 Now, instead of just four cities representing nearly half the country’s middle class—as was the case with Beijing, Shanghai, Guangzhou, and Shenzhen in 2002—by 2020, inland China is expected to be home to 40 percent of the country’s middle class.
Given the density of Asian cities, last-mile bike sharing and autonomous vehicles are other areas in which Asians are making strategic investments to navigate around the traditional path of universal vehicle ownership and crippling traffic congestion. Bike stations and dockless biking have been pioneered by companies such as Mobike and Ofo, which have spread from China across Asia and into Europe. As Asian cities prepare for driverless cars and buses on their street, policy makers, regulators, urban planners, and insurance companies are developing new frameworks to govern them. Even the Western firms ranked most likely to get self-driving cars onto the road first—including Ford, Renault, Daimler, Volkswagen, and BMW—will be looking to do so in Asia. In South Korea, Hyundai and Kia have partnered with Cisco Systems and other US IT companies to advance connected car communications. Baidu’s open-source approach to driverless-car software development, called Apollo, has lured Intel, Daimler, and Ford to contribute resources. Baidu might be on a collision course with Didi Chuxing—or perhaps it will simply buy it. US firms are now copying Chinese innovations. LimeBike in California is copying China’s dockless bike sharing as pioneered by Ofo and MoBike. DiDi has algorithms that predict which ride-sharing users will want a ride at certain times and locations and is designing driverless car interiors for shared augmented-reality experiences—programs that Uber and others will surely copy. Apple is conducting payments through the iMessage chat service, following what Tencent has done. Amazon now has a lending service similar to that of Alibaba. Facebook plans to follow WeChat by becoming a complete ecosystem of digital services. These examples demonstrate that the winners of a perceived competition between US and Chinese tech companies to innovate and compete for Asian markets are first and foremost Asians themselves.
Even in capital-intensive arenas such as particle physics and quantum computing, the combination of China’s appropriation of US technology, luring Chinese American talent from Silicon Valley, and thriving enterprise culture have collectively driven Chinese innovation. Autonomous vehicles, energy-efficient power grids, and urban surveillance systems all rest on breakthroughs in AI such as neural networks, which Asians have developed at least a year ahead of their Western counterparts. Andrew Ng, a cofounder of Google Brain and Coursera who then became chief scientist at Baidu, argues that the complexities of Chinese characters and tones pushed Baidu toward advances in natural language processing (NLP) and voice recognition faster than its Western peers. Google’s AI was built on text collected from computers, whereas Baidu from the start focused on location-based data and images collected from mobile devices. Large data sets are the fuel that powers the AI rocket. Alibaba has its customers’ e-commerce and banking transaction data, while Tencent’s data has expanded with its range of customer services while also integrating voice and facial recognition, a field in which the Beijing-based SenseTime is a global leader.
The contrasting approaches to AI have inspired significant Sino-American research collaborations. Google has invested more than $500 million in the Chinese e-commerce company JD.com and has opened an AI research center in Beijing. The United States’ leading high-performance graphics chip maker, NVIDIA, has partnered with Baidu to enhance the company’s efforts to deliver cloud-based services for home assistants and self-driving cars. At the same time, both Baidu and Tencent have funded AI labs in the United States, while Chinese investors more broadly have poured about $700 million into more than fifty AI start-ups in the United States—all of which want to advance their applications in Asia’s largest markets. All of this helps to explain why, according to the Asian Development Bank, AI is creating far more jobs in Asia than it is destroying.
China’s strides in AI have been so impressive that former Google chairman Eric Schmidt has said he expects China to surpass the United States in AI by 2025. But AI is not the arms race it is portrayed to be. Like many technologies, it is circulating and adapting to diverse contexts not dominated by any single power. Investments by Tencent and Hanwha in the Montreal-based Element AI will help expand that company’s presence across Asia from Singapore to Tokyo. Japanese companies are applying AI to semiconductor manufacturing, helping them retain their edge in a critical components sector. India has dozens of promising AI companies. Its Fractal Analytics has a “consumer genomics” methodology that supports many of the world’s largest retail companies. Indian AI companies will dominate the Indian market and compete globally in areas such as computer vision, medical diagnostics, legal contract analysis, and customer satisfaction surveys. Google is deploying ever more capital to fund and buy Indian AI companies. Pakistan also has one of Asia’s leading AI outsourcing companies, Afiniti, which has more than three thousand employees and a valuation of $2 billion. Rather than one country or company dominating AI, then, the model of “AI as a service” is spreading across Asia, giving governments and companies a choice of whom to work with at the best price and on the most favorable data-sharing terms. If China engages in excessive data protectionism—using others’ data through its investments and joint ventures but not allowing reciprocal access to Chinese data or the market—it will encounter pushback and lose out as local and foreign competitors offer more open platforms
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Spending Less to Live Longer
Another approach to boosting worker productivity is enhancing the workers themselves. Eugenics has a deservedly poor reputation given the Western experience with Nazism, but today in the United Kingdom and Scandinavia, Down syndrome has been effectively eliminated from the population by using prenatal screenings to terminate at-risk pregnancies. Japan, too, has a dubious history of eugenics due to its 1930s forced sterilization campaign targeting the mentally disabled. But Asia’s regulatory environment increasingly enables the ambitious pursuit of applied biotech breakthroughs. China has used the same technology that Scottish scientists used to clone the sheep named Dolly in the 1990s to clone monkeys; CRISPR gene-editing technology was pioneered in the United States, but human trials are under way in Chinese hospitals while none has yet been launched in the United States. In 2016, scientists at Singapore’s A*STAR developed a new protein that speeds up DNA editing, and the country’s Temasek Life Sciences Laboratory has launched a large-scale synthetic biology incubator. It is likely that prenatal genetic interventions will become the norm in Asia.
More immediately, Asians are also benefiting from a global awareness about the importance of healthy lifestyles and the latest biomedical technologies and health care practices. Japan and Singapore have the world’s highest life expectancies, which only some counties in California and Colorado can match. But from South Dakota to Kentucky to Florida, there are US counties with a lower life expectancy than that of the average citizen of Iraq, Bangladesh, and even North Korea. Smoking is in decline across Asia (except Indonesia) though Chinese and Gulf Arabs are now witnessing a significant rise in lifestyle diseases such as hypertension, diabetes, and obesity. In Southeast Asia, heart disease is projected to overtake pneumonia and tuberculosis (the region’s previous leading killers) within a decade. Asian leaders know that with such large populations they cannot afford to replicate the large footprint of Western health care systems, which consume up to 20 percent of GDP. China’s health care coverage has risen from 21 percent of the population in 2003 to nearly 100 percent today but total health care expenditure is less than 10 percent of GDP. Instead of the $9,146 per capita health expenditure in the United States or the $5,006 in Germany, Asian costs can remain closer to the current $4,000 in Japan or $1,500 in the Gulf region. More than 70 percent of Indonesians are now covered under the country’s ambitious universal health care scheme, with Vietnam and the Philippines close behind.
