July 2024
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HOW CHINA MADE A DIFFERENCE THIS MONTH
Reforms yes, no fire-fighting
In July, the 20th CPC Central Committee held its Third Plenum, traditionally regarded since 1978 as the pivotal event every five years for proposing China's reforms. Given the widespread concern over China's economic climate, this Third Plenum attracted significant attention.
The Third Plenum's communique and resolution detailed 300 initiatives to tackle within the next five years, highlighting China's immediate economic risks, urgencies of deepening reforms and outlining definitive plans for societal growth. A significant deadline has been set for completing these reforms by 2029, marking the 80th anniversary of the People’s Republic of China. This deadline underscores the accountability expected of party leaders to deliver on these commitments.
Despite clear directives from the Third Plenum, the global response was largely one of disappointment. Beijing opted not to implement significant stimulus or major macroeconomic reforms, instead relying on well-worn rhetoric. Xi’s speech felt for many China watchers like we all heard it before. The plan continues to focus on modernizing under CPC leadership, aiming to transform China into a high-standard socialist market by 2035, leveraging high-tech advances to boost economic self-reliance - a narrative that has become all too familiar.
When I read the Third Plenum documents, it did however also sounds like music to my techno-positive ears. The political jargon serves as background vocals, enriching the melody with harmony and emotion, influencing CPC comrades. Yet, I find it more insightful and appealing to focus on the main lyrics and chorus, which help foresee China's future directions and what will remain significant over the next decade.
Critics, who view China pessimistically as a glass half empty, hoped the Third Plenum would substantially boost China's economy, but no such intervention seems planned. Instead, under Xi's leadership, China is prioritizing long-term initiatives in science, technology, security, governance, and industry over immediate economic remedies. The emphasis remains on "high-quality economic development," conspicuously avoiding alarming terms such as “bubbles”, “downturn” or "crisis". When considering China's description as a "high-standard socialist market economy," it's crucial to interpret the national priorities literally and sequentially. Xi is set to maintain this strategic direction.
Markets may have misunderstood that the Third Plenum is not designed to replace the CPC's economic guidance with solely market-driven mechanisms. Historically, only the 1978 Third Plenum under Deng Xiaoping, following the Cultural Revolution, marked a major shift toward China’s supervised market liberalization. Typically, Third Plenums provide high-level strategic guidelines and set priorities for future reforms and legislations. The 2024 Third Plenum adhered to this approach, setting an agenda despite expectations for more substantive changes.
Optimists, seeing China as a glass half full, welcomed the Third Plenum's assurance that the CPC would maintain stability. Xi Jinping appears resolute against both external pressures and alleged internal disagreement within the CPC. Considering China as a country in full transition (the subtitle of my book “Can We Trust China?”), it's sensible for Beijing to maintain its current trajectory. The Plenum highlighted a commitment to market-oriented reforms, leveraging both market pull and push mechanisms to achieve this goal.
The pull-driven reforms in China involve meticulous, incremental steps such as targeted stimulus initiatives, issuance of special-purpose bonds, and tax reforms to assist local governments. These measures aim to prevent debt defaults, reduce governmental operational costs, attract more foreign investment, stabilize the real estate market, and eliminate structural impediments to consumption and income. China is adopting a comprehensive, more holistic, policy approach to progressively restore economic balance through non-invasive strategies, focusing on achieving an optimal state-market equilibrium rather than drastic interventions to immediately resolve economic issues.
The push-driven reforms are ambitiously designed to lay the foundation for China's modernization through "new quality productive forces." This comprehensive strategy encompasses enhancing education, science, technology, and cultivating talent as fundamental elements. It includes developing a strong social security network and revising the hukou (residence permits of migrants) and rural land ownership systems to unify urban and rural development. The approach also focuses on fostering original innovation to bolster industry resilience and supply chain security, prioritizing green energy and financial market advancements as key economic drivers for the upcoming decade. Moreover, China plans to offer red bull energy drinks to talented and aspiring citizens who support the CPC's long-term vision.
My glass remains half-full as I view the Third Plenum documents, seeing them as Beijing's latest endeavor to drive China towards greater intelligence, innovation, and integration in the next five to ten years. The emphasis on science, technology, and innovation excites me as they are deemed crucial for unlocking China's potential by 2035. The true test, however, lies in whether these plans can address the economic imbalances. Time will tell if Xi's strategies prove effective. I'll continue to monitor and report on whether these innovations restore confidence in China's economy and markets.
CHINESE INNOVATION NEWS – JULY 2024
1. China Demonstrates the First Entirely Meltdown-Proof Nuclear Reactor
2. China’s wind and solar capacity overtake coal for the first time
3. China is the West’s corporate R&D lab. Can it remain so?
4. China builds world's first field test network for 6G communication
5. China’s ‘low-altitude economy’ soars as UAVs surge by 48%
6. Chinese scientists discover highest-energy gamma-ray spectral line
7. Chinese researchers design wristwatch for real-time health monitoring through sweat
8. China Generative AI updates July 2024
(Click the links in titles below to read a larger news article on each topic)
China's test of a Meltdown-Proof Nuclear Reactor showcases a significant enhancement in nuclear safety, outperforming older designs. Conducted by Tsinghua University, the test involved a 200-megawatt High-Temperature Gas-Cooled Reactor Pebble-Bed Module (HTR-PM), which demonstrated its ability to cool down passively in about 35 hours without external aid. This reactor's design uses graphite pebbles containing uranium fuel instead of traditional fuel rods, greatly decreasing fuel energy density and improving the reactor's ability to dissipate heat passively if cooling systems fail.
While the concept was developed in the 1960s in Germany, China was the first to commercially implement it connected to the grid.
The first entirely meltdown-proof Nuclear reactor was also mentioned in the great podcast called ALL IN. Here is the main storyline:
Currently, China has an electricity capacity of approximately 2.9 TW, with plans to increase it to 8.7 TW by 2050. This projected capacity will be twice that of the US today and three times greater by 2050. By that year, 70% of China's capacity is expected to come from renewable sources and 18% from nuclear power, including the addition of 300 new nuclear reactors. The cost to build a nuclear plant in China is significantly lower, five times less expensive than in the US, and the cost per kWh in China is also cheaper—6 cents USD compared to 17 cents USD in the US. This substantial difference underscores the industrial challenges facing the US and also Europe. Despite discussions about decoupling from China, the reality is that China's AI-enhanced factories will operate with greater electricity capacity and at lower costs.
Two additional notable advancements in nuclear technology in China are worth highlighting.
Firstly, an article from July detailed China's plan to launch its first thorium molten salt nuclear reactor by 2029, touted as the first clean, small, modular, safe, and cost-effective nuclear reactor located in the Gobi desert. This was first mentioned in my newsletter of June 2023.
Secondly, another breakthrough at Shanghai's nuclear fusion plant HH77, described as the world's first fully high-temperature superconducting tokamak device, successfully produced its first plasma. Dubbed the "artificial sun" and featured in my April 2023 newsletter, this development is seen as the pinnacle of clean energy.
China is actively working to expand its capabilities and likely market dominance in nuclear reactors.
For the first time, wind and solar energy capacities in China have surpassed those of coal. Rystad Energy's forecasts indicate that by 2026, solar power will become China's primary energy source, with its total capacity reaching more than 1.38 terawatts (TW)—150 gigawatts (GW) more than coal. The country is on track to install 1,200 gigawatts (GW) of combined wind and solar capacity by the end of 2024, achieving this goal six years ahead of its 2030 target for CO2 emission peak neutrality. Since 2020, annual wind and solar installations have consistently exceeded 100 GW, significantly outpacing coal, with 293 GW added in 2023 alone. In comparison, only 40 GW of coal power was added in 2023, and just 8 GW in the first half of 2024, signaling coal's drastic decline.
A recent CarbonBrief report highlights a significant shift in China's energy landscape: coal's share dropped to a record low of 53% in May 2024, while clean energy surged to a record high of 44%. This report relates to energy capacity, not energy capacity as the one above. This marks a decrease of seven percentage points for coal compared to May 2023, reflecting a rapidly downward trend. Meanwhile, China's electricity demand in May increased by 49 TWh, or 7.2%, from the previous year. This increase was outpaced by the expansion of clean energy, which led to the largest monthly drop in fossil fuel output since the Covid-19 pandemic. If the rapid deployment of wind and solar continues, China's CO2 emissions are expected to keep decreasing, potentially making 2023 the peak year for emissions.
This moment is a crucial pivotal moment for both China and the global clean energy transition.
This story in The Economist underscores the growing importance of China's Research & Development capabilities beyond its manufacturing strength. Between 2012 and 2021, foreign firms increased their Chinese research personnel by a fifth, totaling 716,000, and nearly doubled their annual R&D spending to 338 billion yuan ($52 billion). This investment has elevated China's R&D expenditure to match Europe's, with only America spending more. (see chart).
Companies like VW, Bosch, HSBC, AstraZeneca, Apple, Bayer, and Tesla have invested or announced plans to invest substantially in R&D in China. A significant draw is China’s abundance of young, talented engineers and scientists who still demand lower salaries compared to their Western counterparts and often works longer hours. Additionally, China offers a vast consumer market for testing everything from apps to pharmaceuticals, often more cost-effectively and within an internationally recognized regulatory framework. However, tougher American and Chinese IP regulations pose potential future challenges for the export of intellectual property created in China.
A team from Beijing University of Post and Telecommunications has developed a method called "intelligent integration," enhancing 4G and 5G networks towards 6G capabilities. The technique utilizes "semantic communication," which focuses on transmitting meanings rather than mere data, enhancing efficiency and reducing processing costs. This approach has proven effective in achieving a tenfold improvement in key communication metrics, including capacity, coverage and efficiency on existing 4G networks. AI advancements will further enhance semantic understanding in communication, extending AI's reach across various sectors.
Currently, China has 3.92 million 5G base stations. 6G is anticipated to be up to 50 times faster than 5G, which could significantly enhance communication capacity, coverage, and efficiency. China plans to commercialize 6G by latest 2030, with the standards expected to be set by 2025.
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One of the most promising new high-tech industries is China's 'low-altitude economy,' along with humanoid robots, autonomous driving, and green hydrogen. I discussed in my April 2024 newsletter how this new low-altitude sector, particularly after my visit to eHang's flying taxis in Guangzhou, are poised to make a global impact.
In the first half of the year, unmanned aerial vehicles (UAVs) registrations in China surged by 48%, with 608,000 new UAVs, bringing the total to over 1.87 million. This industry spans several unmanned aircrafts below 1,000 meters, such as in agriculture, delivery services, taxis, and emergency response. China is stringently regulating this sector, prioritizing security and privacy. This regulation means fewer companies will obtain operational licenses, but those that do are expected to significantly boost the Chinese economy. The further development of low-altitude communication, navigation and monitoring, along with local government cooperation is the crucial next step for the growth of this industry.
Chinese scientists have discovered a gamma-ray spectral line at energy levels peaking at 37 million electron volts from cosmic bodies, setting a new record for the highest-energy gamma-ray spectral line observed. This milestone is pivotal for advancing our understanding of gamma-ray bursts (GRBs), which are short-lived, intense explosions second only to the Big Bang, and typically occur during the collapse of massive stars or the merging of compact binary stars like neutron stars and black holes.
The first GRB was detected in 1967. Since then, particularly with the discovery of gravitational waves, GRBs have become a focal point in multi-wavelength and multi-messenger time-domain astronomy. The brightest GRB recorded occurred on October 9, 2022, originating from a massive star's collapse.
China has been proactive in exploring these cosmic phenomena, launching a suite of satellites for GRB observations including Insight-HXMT, GECAM, the Einstein Probe, and SVOM, aimed at uncovering the physics and mechanisms behind GRBs and the relativistic jets they produce. This ongoing research underscores the importance of GRBs in understanding the most extreme conditions of the universe.
Scientists from the Hefei Institutes of Physical Science have developed a wristwatch capable of analyzing the essential chemicals in body sweat, including potassium, sodium, and calcium, which are vital for muscle function, nerve health, and maintaining a regular heartbeat. Sweating leads to the loss of both water and electrolytes. Excessive loss of potassium, for instance, can impact heart function and neuromuscular activity. Similarly, the depletion of sodium ions may result in symptoms such as fatigue, dizziness and muscle cramps.
This innovative device uses a sensor chip with an ion-sensitive membrane to analyze sweat in real time directly from the skin. It aims to extend its capabilities to monitor additional physiological markers such as glucose and chloride ions. Remarkably, this non-invasive method, which eliminates the need for needle-based electrolyte tests traditionally done in hospitals, has shown about 95% accuracy in its readings. This technology allows for continuous, real-time monitoring of electrolytes, enhancing the management of health through wearable technology.
Don’t sweat it! China is getting ready to monitor you health!
8. China Generative AI updates of July 2024
Premier Li Qiang opened the 2024 World Artificial Intelligence Conference (WAIC) with a keynote focusing on "Governing AI for Good and for All." His speech highlighted China's leadership in establishing crucial AI standards despite the challenges of US sanctions and escalating tensions with Washington.
Speaking at the World Artificial Intelligence Conference in Shanghai, Baidu’s CEO Robin Li said China has too many large language models (LLMs) and called for tech leaders to focus more on building real-world applications powered by AI.
Alibaba will make an “AI-powered conversational sourcing engine” available to merchants from September to simplify global business-to-business e-commerce. This would help streamline how a buyer is matched with suitable products and suppliers under Alibaba’s platform.
Baichuan AI, one of China’s four so-called AI tigers, raised about 5 billion yuan (US$687.6 million) in a funding round by Alibaba, Tencent and Xiaomi that valued the start-up at more than 20 billion yuan (US$ 2.7 billion). Baichuan AI was founded in April 2023 by Wang Xiaochuan, founder of Sogou, once China’s second-largest search engine operator after Baidu.
Chinese technology giants Alibaba and Tencent Holdings have rushed to offer the latest AI model from Meta into their cloud services. Alibaba is offering one month of free compute resources that can be used for training and inferencing tasks with Llama 3.1. Tencent offers Llama 3.1 model on its cloud platform, which includes fine-tuning and tweaks to ensure the Meta models are usable in a range of areas, from intelligent conversation, text generation and writing tasks, according to the company.
China’s internet watchdog has named and shamed certain agents who were caught offering local access to ChatGPT. Their action shows its resolve to enforce domestic AI rules rolled out in August last year, which mandates all AI services to be screened and registered by authorities before being made available to the public.
In a ranking from SuperClue, Alibaba’s Qwen2-72B-Instruct ranked behind only GPT-4o and Claude 3.5 Sonnet – both closed-source – based on metrics such as coding and text comprehension. Five Chinese models – from Alibaba, Deepseek, SenseTime, Oppo and Zhipu AI – outperformed GPT-4 Turbo model from OpenAI.
SAS and Coleman Parkes Research conducted a survey of 1,600 decision-makers worldwide and found that 83 per cent of Chinese respondents said they used generative AI, compared with 65 per cent in the US. China was higher than the 16 other countries surveyed. The global average was 54 per cent.
China filed more than 38,000 patents related to GenAI from 2014 to 2023 compared with more than 6,000 from the US, according to the UN’s IP agency. They make up about 70 per cent of the 54,000 filed in the past 10 years in the same category.
Tencent has upgraded its high-performance computing (HPC) network, with an improvement to its artificial intelligence (AI) capabilities that will improve the efficiency of network communications and LLM training by 60 per cent and 20 per cent, respectively.
China is seeking to establish least 50 sets of AI standards by 2026, according to a new draft policy from Beijing, covering AI safety, governance, applications, computing systems, large language models and chips. The draft policy has taken on a pro-market, soft-law approach – instead of the typical command-and-control regulation – to guide and promote China’s AI industry development.
Zhihu, China’s Quora-like question-and-answer service launched a new generative AI feature that responds to users’ inquiries on the platform. The feature called Zhida, which means “direct response” in Mandarin, taps into the platform’s vast content archive to automatically search, summarise and generate answers to users’ questions.
Kuaishou, one of the main rivals to TikTok’s China sibling Douyin, showcased several fresh features for its text-to-video model Kling AI at WAIC, including the ability to generate videos up to 10 seconds.
The Shanghai Declaration on Global AI Governance, detailed in the linked document, outlines a comprehensive approach integrating AI development with rigorous safety and governance measures. It emphasizes increasing public engagement, boosting literacy, and enhancing the overall quality of life and social well-being. The declaration reflects China’s focus on industrial growth, cooperative ventures, societal benefits, and maintaining high standards of ethics and norms. It adopts a pragmatic, human-centered, techno-positive, and cautious approach, particularly highlighted by the commitment to use AI technologies to mitigate AI risks and strengthen governance capabilities, epitomizing the principle of "eating your own dog food."
If you know of any other breaking China innovation news from July 2024 that I missed, do let me know so I can add it in next month’s newsletter!
KEEP TUNED!