Made in China 2025. It sounds so much snappier than a policy to “advance the development of the manufacturing industry, enhance industrial fundamentals and accelerate China into a manufacturing powerhouse”.
And that is perhaps why the slogan has been quietly dropped from government pronouncements over the past six months. US trade negotiators found it far too easy to latch onto it as a symbol of China’s perceived uncompetitive trade practices.
But the policy largely remains the same even if the slogan has gone. Its substance was reiterated once again this month in the State Council’s annual work report, which Premier Li Keqiang presented to the National People’s Congress (NPC).
China has not given up its ambitions to move up the value chain. On the contrary, it plans to accelerate the transition through the rapid development and adoption of artificial intelligence (AI) within manufacturing processes and inside the smart goods that are produced for sale.
AI has been front-and-centre of the Chinese news over the past few weeks – quite literally. That’s because Xinhua delivered part of its Two Sessions coverage – the annual NPC meeting and simultaneous Chinese People’s Political Consultation Conference (CPPCC) – using an AI anchor, Xinxiaomeng (modelled on the real life presenter, Qu Meng).
Similarly, over in Shanghai, the country’s largest consumer goods show, the Appliance & Electronics World Expo (AWE), has been showcasing multiple smart appliances. This year’s slogan was “falling in love with AI”.
A columnist writes on Baidu’s Baijiahao portal that the expo provides the best window to peer into Chinese consumers’ souls. What they lapped up this year were: Samsung’s 85 inch TVs using 8K technology (8,000 pixel definition), Midea’s “Rice Map of China” cookers, which can work out what kind of grain they’re cooking, and a new range of smart fridges, which adjust temperature and humidity based on their contents.
Then there was Haier, which unveiled a whole new concept: the Internet-of-Clothing (IoC), a sub-category of the Internet-of-Things (IoT).
Its product is essentially a smart laundry room comprising a washing machine which analyses the clothes, water quality and detergent type; a dryer, which can tell when the clothes are dry; and finally a folding machine, which finishes the job off. Users can check what stage proceedings are at through an app.
Earlier this month, Xinhua reported that “consumption upgrades” are expected to be a key driving force for the economy this year. The government is also expected to encourage appliances sales to ensure that it hits its 6%-to-6.5% GDP growth target.
Indeed, Zhang Jindong, the boss of retail giant Suning, used the CPPCC to advocate a new rural subsidy programme focused on household appliances (we mentioned the original scheme in the first issue of WiC a decade ago). The 2009 scheme prompted a Rmb720 billion ($107.3 billion) four-year spending spree, which cost the government about Rmb90 billion in subsidies.
Stock market investors have clearly bought into the idea that consumption upgrades will happen – most probably boosted by government support. The three white goods giants – Hong Kong-listed Haier, plus Shenzhen-listed Gree and Midea – have all seen their share prices climb by almost a third this year. In doing so, they have outperformed both the Hang Seng China Enterprises Index, which is up by 11% over the same period and the Shanghai Shenzhen CSI 300 Index, up by a quarter. There were, however, signs of profit-taking in mid-March with both Gree and Midea losing some ground.
Investors have been increasingly querying whether the first quarter’s equity market rally has outpaced itself. However, this has yet to impact on the performance of Nasdaq-listed Viomi Technology, which has rocketed more than 50% since the beginning of the year.
The company – in which smartphone maker Xiaomi has a 33.4% stake – is best known for its IoT platform of smart kitchen appliances. According to consultants China Media Monitor (CMM), its branded sales grew by 15,752% in 2018, the highest among any Chinese brand.
Viomi still sells the majority of its products through Xiaomi’s channels, although it is now broadening its distribution network through Suning as well.
Xiaomi itself recently revealed that its IoT revenues jumped 75% year-on-year during the fourth quarter to Rmb14.9 billion. They now account for 34% of overall revenues, although the positive momentum has yet to feed into its share price.
Investors’ attention remains firmly fixed on depressed sentiment in the smartphone sector, even though the company’s current trajectory suggests that handsets will account for less than 50% of sales by the end of the first quarter.
Xiaomi now has a dual policy targeting IoT and smartphones equally. Along these lines, it recently unveiled plans to invest Rmb10 billion in AI-related R&D and strategic investments in the consumer IoT sector.
During the Shanghai-based AWE expo, Viomi and market intelligence firm IDC launched a white paper examining what the future might hold. They concluded that five main themes would drive growth.
They agreed that AI-driven IoT devices would continue to grow very strongly. Having spent the past decade capturing data on smartphones, the next decade will be about companies capturing data on devices within the home.
AI will drive the data analysis on those devices and it will enable them to make independent decisions (‘smart decision making’). 5G networks will facilitate the transition and will also allow devices from different manufacturers to start talking to each other.
But Viomi and IDC believe that users need not fear a dystopian future similar to that portrayed in the 1970s film, The Demon Seed, which sees the actress Julie Christie trapped in a home controlled by a computer that runs amok.
Instead, they foresee a future where humans will stay in charge, and get far more comfortable using IoT. This is because our interactions with devices will become more tactile and intuitive, thanks to better designs using voice and touch.
We may also end up controlling our own data. Viomi and IDC conclude that local storage may become the norm for home devices.
Indeed, questions about data access and privacy featured prominently during the CPCCC. Delegates highlighted the need for far more governance. They included Baidu chairman and CEO, Robin Li, who came up with a number of proposals including improving the regulation of electronic medical records and expanding research into AI ethics. “I suggest that the purpose of AI is to help human beings, instead of hurting people,” he said. “As this technology is fast developing, there is a need to get a better handle on the relationship between machines and human beings.”
Tencent founder, Pony Ma, spoke out along similar lines, telling reporters that it “requires standards and guidelines. I hope that everyone will do a little more research, have some public discussion and that the government will give this more attention.”
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