China’s iFlytek raising up to $350m to invest in AI

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Chinese artificial intelligence company iFlytek is seeking to raise a $300m-$350m fund to invest in AI start-ups to bolster its domestic ecosystem in the face of fears the US intends to impose a digital “iron curtain” between itself and China.

Luo Yi, a founding partner of ShangCap, which is managing the new US dollar fund on behalf of iFlytek, said the company planned to raise the money worldwide but US investors were not expected to participate.

“We are unlikely to get funding from the US,” said Mr Luo. The US was imposing “an iron curtain on technology from China”, he added. “Instead, we are targeting Asian and Mideast sovereign wealth funds. We are looking to invest both in apps and hardware.”

The move fits into a broader push by China to become the world’s leader in AI by 2030 with a domestic industry projected to be worth about $150bn at that time. The first stage of the plan, which was implemented in 2017, urges Chinese companies to keep pace with the world’s leading AI technologies and applications until 2020. The second phase looks to AI breakthroughs by 2025 before assuming global leadership by 2030.

But as Washington has stepped up its trade war with Beijing to include broad curbs on Chinese tech groups, iFlytek is one of a clutch of companies the Trump administration is reportedly considering adding to its export blacklist. The US has already barred American companies from selling to Huawei, the telecoms group, without a licence. iFlytek said last week that it hoped “to be treated just and fairly by the US government” but that it had made “alternative plans against extreme situations”.

The potential to end up on the blacklist has had a chilling effect across the Chinese tech sector. “It is too dangerous for investors to touch them while they are in the crosshairs of the USA,” said a Hong Kong-based hedge fund manager.

iFlytek has a high level of backing from and works closely with the Chinese government, from which it receives subsidies that last year totalled Rmb276m ($40m). It also works with facial recognition companies that are controversial because their customers are mostly autocratic governments.

“Chinese don’t worry about freedom and privacy to the same extent as in the west,” said Wang Shilei, a senior executive at the company. “We have always had an emperor.”

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Shenzhen-listed iFlytek has a market value of Rmb62bn ($9bn) and spent Rmb251m on research and development last year – more than twice its net profit of Rmb125m.

Along with Chinese tech companies Alibaba, Tencent and Baidu, iFlytek is one of only four companies Beijing has asked to develop both hardware and software for autonomous driving and natural language processing.

The company is building an ecosystem that includes co-operating with robot makers and car companies, including UBTech, a Chinese company that makes humanoid robots, Bosch, the German engineering company, carmaker VW and Continental, the US car parts company. It is also developing educational AI.