Some firms to go bankrupt in 2018; sustainable business model needed
Some insiders claim that bubbles are already growing in China's artificial intelligence (AI) sector, following the rapid expansion of the industry. Firms that lack long-term strategies to counteract the emergence of such scenarios may go bankrupt sooner rather than later.
Like many attractive industries at their early stages, China's AI domain has been favored by both private capital and the government, Zhu Pinpin, founder of Shanghai Xiaoi Robot Technology Co, told the Global Times on Monday. "To some extent, we expected a bubble, as investors and governments pushed forward expansion of the industry," he said.
Opportunities in virtual reality and AI have grown exponentially recently, with both considered good bets on the venture capital (VC) investment circuit, according to a quarterly report that KPMG released in October. Use of these technologies in a diverse range of sectors such as medical research, retail, manufacturing and transportation should keep them among the hottest VC investment areas over the next few quarters, the report forecast.
Companies in the Chinese mainland attracted $10.2 billion of VC investment in 95 deals between July and September, the report showed.
"It has become easy for businesses to attract investors and secure funds by claiming to be involved in AI, the flavor of the year," Xiang Yang, an analyst at Beijing-based CCID Consulting, told the Global Times on Monday.
As of the end of June, there were in total 2,542 AI companies across the globe, with the US home to 1,078 of them, according to a report by Tencent Research Institute and Beijing-based research firm ITJUZI in August. Second on the list came China with 592. China has raised a total of 63.5 billion yuan ($9.7 billion), 33.2 percent of total world AI financing.
Some attendees at a recent industry forum in Suzhou, East China's Jiangsu Province, confirmed that the AI sector is increasingly concerned by bubbles. Yao Hua, a partner in an equity investment firm under the Suzhou-based fund management corporate Oriza Holdings, declared that the bubbles are now obvious, with more challenges awaiting in other layers, including basic theory and technological breakthroughs.
Although China lags behind the US in the scale of fundraising, the success rate in securing a round of financing is much higher than in the US, noted the Tencent-ITJUZI report. The average success rate in China is 69 percent, compared to 51 percent in the U.S.
"A large number of AI start-ups will go bankrupt in 2018, similar to what happened during dotcom bubble," Liu Qingfeng, president of Chinese voice recognition firm iFlytek Co Ltd, recently told another industry forum.
The dotcom bubble in the late 1990s was characterized by a rapid rise in equity markets fueled by investment in Internet-based firms, according to US financial info site investopedia.com. The bubble was formed and fed by cheap money, market overconfidence and speculation.
"As a way of luring investors, some so-called AI applications appear to only exist in the company's PowerPoint presentations. We have no idea how they are used in real scenarios," Zhu said.
"We see homogeneous competition in some areas of AI today. Some sectors such as voice recognition, service robots and security guards have less innovative products coming out of them," Xiang said.
In China, smart medical services, smart automobiles and smart education are among the hottest areas for AI, according to the Tencent-ITJUZI report.
Market shuffle
With a large number of Internet companies pouring money into the AI sector, the market will be shuffled in the coming year, and players must find sustainable business models or perish.
"For now, the bubble is still controllable, but we need to be fully aware of potential risks," Zhu said.
Still, some firms have been very focused on specific domains such as voice recognition or image recognition, and now have to work on vertical sectors to make their businesses more sustainable, noted Xiang, the analyst.
The economic potential of AI is tied the use of such technologies by traditional industries, according to a McKinsey & Company report in April. However, AI is not yet a strategic priority for over 40 percent of companies in those sectors.
