China out on its own when it comes to investment AI

China will likely provide AI-enabled bespoke investment solutions before developed markets because of its lax data protection laws, experts say.
China out on its own when it comes to investment AI

China is ahead of other countries when it comes to the adoption of big data and artificial intelligence (AI) and pretty soon Chinese asset management companies will be able to provide their clients with very tailored investment solutions, experts say.

Of course, that's partly because there aren’t really any restrictive privacy laws in China when it comes to personal data, unlike in the West, where data ownership is supposedly with the individual and not with the company, although often not in practice. As a result, it's questionable to what extent China would be able to export its cutting-edge AI and big data expertise.

Beijing wants China to become a world leader in AI by 2030 and China’s fintech development has been tipped to thrive as its consumer data troves grow.

“China will push the envelope here ahead of other markets," Daniel Celeghin, managing director of consultancy firm CaseyQuirk, told AsianInvestor, noting how entities such as mobile app companies can already sell their data to financial institutions, enabling them to analyse the big data.

It's a point echoed by Musheer Ahmed, general manager of the FinTech Association of Hong Kong, who sees China now leading the global AI pack, although not necessarily forever.

"However, [and] this is important," said Celeghin, "I don’t believe a lot of the Chinese innovations will be exportable.”

The data that financial institutions in China can get from the populace comes from virtually every digital footprint. If not Big Brother, then at least Big Data is watching you in China.

“Your bank records, the data that your life insurance or health insurance companies might have about you, your online shopping history, if you use Taobao for example or Alibaba to buy things, your browsing history, your WeChat records, all of that, your geographical locations, through the GPS on your phone, your mobile providers as well as all of those apps, such as WeChat, they know and are tracking where you are physically,” Celeghin said.

If asset managers put together these sources of big data and apply mining techniques to what is collated, they can develop really accurate profiles of individual investors from a financial perspective, map out their future financial needs, and distribute a tailored portfolio to individual investors, he said.

Take a couple who send their six-year-old son to an English-language school; that may be a very good indicator that they will also likely send their son to an overseas college when he is 18. Knowing this, financial institutions could then develop and propose a 12-year lifespan portfolio, recommending the amount of money that would have to be put away every month and projecting the expected return, he said.

Not only data

Ahmed of the FinTech Association of Hong Kong said he agreed China is now ahead of other countries when it comes to big data and AI adoption but he warned that most of the data available for analytics had only been created in recent years, which could lead to bias in the forecasts.  

He also said China's lead was not unassailable. “People can catch up with that when governments wake up to that and [decide] how much investments they will make to catch up with that. But it will take a strong will of any government and country to invest strongly into AI and big data analytics to be able to match up with China,” Ahmed said.

“You can’t just talk about the data. You can do nothing with the data if you don’t have the people and the technology to process it,” he said.

In some respects, it's a circular argument. The rising size and complexity of datasets pose challenges for traditional analytical approaches, so the benefits of the big data explosion cannot be realised without the help of AI. But as a report from Bank of America Merrill Lynch noted in August, data-thirsty AI-based algorithms such as machine learning and deep learning can only be made “smart” by accessing large amounts of data, 

So China, while ahead, will still need time to develop its big data AI analytics.

“The first generation will be clunky," Celeghin of CaseyQuirk said. "The first generation will get more wrong than right. And the adoption rate won’t be very high. But over time, this will get better and better.” 

This article was updated to reflect the fact that China has a data protection law in place, but it is seen as being less rigorous than those in the US or Europe.

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