🧵Takeaways from WAIC and Company Visits in Shanghai

The @TechBuzzChina AI Trip began as a personal mission to get a clearer view of what is really happening in China’s AI sector. When I mentioned it to a few other investors, the interest was immediate, and the group filled up so quickly that we now have enough demand for a second edition next month, which will focus more broadly on deep tech. It was my first time at the World AI Conference (WAIC), and also the first time in its eight-year history that the event had sold out. Tens of thousands of people showed up, the halls were packed, and for a few days it felt like WAIC had taken over the city. Friends in Shanghai joked that it was the only thing happening that week.

We spent about 5 hours walking the conference floor but most of the remainder of the 5 days in smaller, more in-depth meetings hosted by companies, partners, and VCs. We met with companies ranging from Baidu, Alibaba, and Tencent (BAT) to unicorns, as well as young startups founded less than a year ago. Almost all of these companies sell to enterprises, though a few were consumer-facing. Here are some of the clearest themes that stood out from the week: 1/ Robotics is a major highlight. It’s clear that in China, AI and robotics are seen as part of the same conversation. The embodied intelligence approach is not niche but central. This trip didn’t allow for a deep dive into robotics supply chains, but we will do so in the future, and cover the entire robotics ecosystem in more detail, including the growing number of component manufacturers that are both interesting from a technology perspective and increasingly available for public market investment due to growing government support.

Some of the technology seemed very impressive. One company we met was an electronic skin maker claiming 80% domestic market share for humanoid robots — still a small market, but their sensors can detect as little as one gram of weight, which is critical for making truly useful humanoids and has applications in robotic arms as well. That said, multiple VCs commented on rising valuations in robotics, calling them irrational and inflated compared to just a year or two ago.

One of the hottest trends in Chinese consumer internet this year …

Revenue from short video dramas 短剧 — serialized stories of 1-2 minute episodes typically totaling 60-120 minutes, designed for vertical viewing on phones—has surpassed movie box office.

Operators compare them to “mini games” rather than traditional long-form media.

Creators attribute their addictiveness to the fact that they cram “2-3 movies’ worth of drama into one series” and the “3-7-21 rule,” where every 21 seconds must evoke a new emotion to maintain engagement. I forgot what the 3 & 7 stand for though 😂 Hongguo app from ByteDance has broken out to be a category leader with many predicting it to be the next 100mm DAU app. (It was at 30mm in October and many think it’s about 50mm now). It was also the fastest growing app this year in China.

Fascinating thoughts from a Chinese-American founder who’s working on AI in global markets re: disruptive power of this new tech:

“996, labor-intense, low salary companies might be a concept of the past, when you pay only $50,000 for an engineer … … which is very decent a price tag in most part of the world, you are not going to spend another $10,000 for training, tools, etc.”

His point is that in the US where labor is so much more expensive it’s much easier to justify buying AI training and tools for the workforce

Should I invest in Mexico??

1/ Tesla is mobilizing Chinese suppliers to establish factories in Mexico, aiming to replicate the success of its Shanghai factory. This move comes as Tesla seeks to expand its production capacity and maintain its competitive edge. 2/ Several Tesla suppliers have already announced plans to build factories in Mexico. For instance, Sunrise Group announced in March that it would invest up to $276 million in a production base in Mexico, which is expected to commence operations in July or August next year.

1/ Are you seeing extra discounts on Amazon? Chinese media & sellers are speculating it's due to Temu. Amazon sellers have noticed an unanticipated 20% reduction on their product listings, impacting entire categories. This is a development they did not initiate. 2/ Moreover, this reduction extends to both third-party sellers and Amazon's own products, irrespective of whether they are new or old. Sellers are anxious, as this unexpected 20% decrease could lead to losses, esp for those who had already implemented discounts of 20-30%."

The accelerator fka YC China now called MiraclePlus had their Spring 2023 Demo Day recently. Of the 60 cos who presented, 41 were AI, 39 related to LLMs, 23 enterprise software, 11 robotics. Average age of the founders is 29, with 78% holding a master's degree or above, 67% having an overseas background, and 32% of the projects having female founders. Below are descriptions of 10:

Dude wtf never buy a property with HOA my in-laws did and their HOA is charging them $13K+ USD in fees for supposedly illegally parking their RV for a year during COVID. The board actually verbally said OK then reneged then cancelled a buncha mtgs & now charging for BS legal fees Totally taking advantage of the fact that they are immigrant elders with mediocre English & so sending one scary letter on lawyer letterhead after another. They’d totally not do this to a more confident and let’s face it non-minority. And yeah this is the Bay Area

Wow. Sequoia is splitting itself into three firms. China will become HongShan (actually just the pinyin of Sequoia) & India and Southeast Asia will become Peak XV. Separation to take place by March 2024.
They downplayed the geopolitics but come on, we aren't blind. My impression from having Sequoia founder friends & portcos is that the cooperative spirit across countries was definitely there, but not super tight or anything. And for certain sectors the insights just don't translate across markets, eg SaaS.

When Google left China, many of my Chinese tech friends laid flowers at the company’s HQ in mourning bc they believed the govt and Baidu had been making things difficult for the co. (It was not banned, but it said it was hacked.) One friend in particular, one of the first two dozen employees at Baidu & so had a substantial stock position in the co, sold his stock on the day of the news even tho it was obvious the stock was going to go up bc of it (it did). It was out of principle, he said.

Helpful update on Chinese gaming, esp for those of you with holdings in Tencent, Netease etc.

Over the past 4 months, the NPPA issued 4 batches of domestic game approvals covering 345 games, and 2 batches of foreign approvals covering 71. Although the number of game approvals per month remains lower than during the period immediately before the eight month “pause on approvals” that ended in March 2022, the number of domestic game approvals increased in recent months.

Ok I ded again at the AI generated drawings by Baidu ChatGPT. Apparently it translates prompt into English then uses Stable Diffusion which yields all sorts of hilarious results bc there’re so many idiomatic sayings in Chinese
A confident man: 胸有成竹的男人(man w chest w bamboo) A very popular food dish 夫妻肺片 which if properly translated is Sliced Beef and Ox Tongue in Chilli Sauce but if directly translated is “husband and wife lung” thus the below.

PS so forgivable though bc it’s usually mistranslated on menus in China

Wow, a Chinese gaming co installed an AI CEO at one of their main subsidiaries in August. Stock outperformed.
Tang Yu was responsible for all of the typical duties: reviewing high-level analytics, making leadership decisions, assessing risks, & fostering an efficient workplace. I like how they gave the CEO a “she” identity too.

“She worked 24/7, didn’t sleep, and was compensated $0 per year.
But there was a catch: Yu wasn’t a human. She was a virtual robot powered by artificial intelligence.”

thehustle.co/should-we-auto…

Chinese tech media Leiphone did a pretty interesting analysis on which independent leader they think will win the “Chinese OpenAI” war, and in first place is Wang Xiaochuan, CEO of search engine Sogou, followed by Lu Qi, ex MSFT, Baidu & now running an accelerator in China. In third place is Zhang Hongjiang of Beijing Academy of AI, followed by Shen Xiangyang, former head of Microsoft Research Asia. Fifth place is Tsinghua CS Prof & BAAI Vice Head leading Wu Dao LLM project.

A great guest column from @semafor on how CFIUS is not actually helping US interests by a CFIUS partner at top law firm WSGR. Even though it has been a boon for the lawyering business, the writer concludes that it probably undermines the natsec interests it supposedly protects. "All of this has been great for CFIUS lawyers and government officials, but probably not so much for the rest of the country. The U.S. loses foreign capital and, even worse, innovative businesses founded abroad that are (or were) looking to grow roots here."

Oh look, China supply chain is so broken that Apple is expanding business with an actual Chinese manufacturer instead of Foxconn or Pegatron. Chinese supply chain is more than just Foxconn, guys

ft.com/content/975f09… An aside, Luxshare was actually founded by a former Foxconn factory worker, who is now the second richest woman in China. They also took over when those Foxconn riots happened. Anyway, what a story:
scmp.com/tech/big-tech/…

Tencent QQ launched a website where you can use AI to turn any photo into anime and it’s kind of hilarious. Yes of course lots of good results like all the other similar services but let’s face it you want to see the bad ones. Here are people AI thought looked cuter as animals: Then overfitting and making everything into a cute face even when it’s … not a face

I do marvel that my parents, who’ve been in US ~40 yrs, got PhD here, worked 50 yrs total in corporate America, always afraid their English / US understanding not good enough but random dude/tte who’s spent a few yrs in China in some expat role VERY confident they KNOW China The disparity is pretty wild if you slow down and think about it

The main point was that ByteDance is eyeing Alibaba's home turf of "shelf commerce" since we all know livestreaming can't possibly be 100% of ecommerce but this title works too:

China’s livestream shopping craze hits a ceiling restofworld.org/2022/tiktok-e-… via @restofworld If you ever run into an analyst who says, TikTok ecommerce won't succeed bc they can't win against Amazon then I hope you remember what I say here: we don't know how big livestreaming AKA content / interest-based ecommerce can get in the US, but even supposing it gets to 1/2 of

WeChat & Allen Zhang proves again it has the best instincts re: social bar none. Its video product Channels is growing super fast. Unlike Instagram, which pissed off its users by pushing unwanted videos onto them, WeChat separates users’ 2-way & 1-way communications. By 2-way I mean bidirectional intentional intimate interactions like messaging. By 1-way I mean broadcast / follow based. In WeChat, Channels are 1-way. In fact, you must create a separate account to post Channels content. You can link it to your WeChat messaging acct, of course.

Starbucks plans to open 3000 stores in China in the next 3 years to reach a total of 9000 in 2025. That’s one every 9 hours. And China is expected to overtake US as largest market by then. Well someone has confidence in the Chinese consumer! At least when it comes to coffee. But maybe they should. Per Meituan, there are almost 120,000 coffee shops in China but only 4 chains with more than 1000 locations. The market is growing at 27% vs globally at 2%. (Really? Not my stats.) But zero covid will be a challenge, and there’s a lot of competition.

Return To Dust is an award winning movie about the very poor in rural China. Lots of Chinese citizens thought it was over dramatized just to win foreign awards & make China look bad. State media had to step in & say, no, ppl do live like this, it’s you guys who are out of touch. Indeed. A scholarship I ran in Shaanxi, China until 2015 had kids who were better off, but still lived in dirt huts and needed to walk daily 1/2 mile for well water. The male lead of this film only ate one egg his entire life … it was too precious to consume as food.