All roads lead to Taiwan.
Bank of America's Global Research department held the 2024 Asia Pacific Telecom, Media & Technology conference in Taipei from March 18-22. The main theme of the conference was with AI.
Analysts from Bank of America observed that China's AI development presents challenges and opportunities. Major opportunities include the county's vast amount of data and the potential of smartphone applications.
Bank of America's Chief China Strategist Winne Wu said that China's economic momentum has weakened, and funds have flowed out to surrounding countries, including South Korea and Taiwan. Many professionals who were previously based in China, Hong Kong, or Singapore, mainly focusing on financial affairs, have shifted their attention to Taiwan to gather technological and AI-related intelligence.
Know your history
Wu said that China's economic development over the past 25 years can be roughly divided into three 10-year periods. Following China's accession to the WTO in 2001, the country focused on export-oriented trade for several years, she explained.
From 2008 to 2009, China faced pressures from the global financial crisis and domestic issues such as overcapacity, said Wu. The country oversaw a transformation of low-end manufacturing, she added.
From 2010 to 2020, China's economy relied on domestic market consumption, with better performance seen in B2C-type companies, including e-commerce, internet, consumer services, and real estate, she said. However, in recent years, China has also encountered development bottlenecks, she added.
Since the start of the US-China trade war in 2018, the supply chains of both sides have gradually decoupled, Wu said. With further pressure such as the effects of the COVID-19 pandemic, China could no longer outsource innovation to Western countries. China is now at a stage where it needs to change its economic structure, she added.
China needs to reduce reliance on domestic consumption and the real estate market, she said. It must strengthen technological self-reliance while enhancing advanced manufacturing capabilities, she added.
Challenges for China
Wu said China faces many challenges such as access to high-end chips, equipment, and talent. Funding is increasingly restricted, she added.
However, China also recognizes the urgency of developing AI, said Wu. Its population growth has peaked, and AI can promote automation, enhance productivity, and reduce labor costs, she added.
If developed successfully, AI could bring significant benefits to China, said Wu. China still has advantages in developing AI, including its 1.4 billion population as consumers of electronic devices, especially the vast smartphone market, she added.
In recent years, innovation in smartphones has encountered bottlenecks, and even advancements in camera functions have failed to impress consumers. AI is seen as a potential catalyst for smartphone innovation.
In the Chinese consumer market, early applications of AI were mainly in translation and education. Smartphone translation functions reduce language barriers in travel and promote the popularization of foreign language resources.
China has a massive amount of data. This helps the development of large language models (LLMs), and the development of small language models for terminal devices.
Regarding the bullish market outlook for AI-related companies, Wu said that the stock market reflects values several times higher than the actual profits of companies, indicating a long-term upward trend. Despite optimism for the long-term development of AI, there is still the chance of short-term fluctuations due to factors such as capital flows, policies, and profit shortfalls, she added.
Simon Woo, responsible for the South Korean market, emphasized that AI drives demand for data centers but faces a shortage of memory chips. Data centers and the Apple supply chain will struggle to operate without adequate memory chips, he added.
Woo said the memory industry is dominated by a few enterprises. It is worth noting how the competitive landscape of the AI ecosystem changes and how Asian enterprises leverage the AI wave to create new value, he added.
