China Tech – Guilt by association

Little interest at any price.

• The simple fact that a Chinese military-affiliated organisation was able to access a publicly available Chinese generative AI model was enough to send Baidu down 11% a sign that Chinese technology is in for another very depressing year.
• Baidu is one of the leading AI companies in China and has been first to market with a Chinese generative AI chatbot which has been demonstrated to work reasonably well.
• This chatbot is named ERNIE and has been available for public use for some considerable time.
• The link between ERNIE and the People’s Liberation Army is tenuous at best.
• A research lab with the PLA’s Strategic Support Force used the publicly available version of ERNIE to examine possibilities of using AI in certain military scenarios such as the US intervention in Libya and published its findings.
• The research paper is no longer online but just the fact that a PLA-associated entity accessed the publicly available version of ERNIE without Baidu’s knowledge was enough to cause panic.
• I am pretty sure that the same researchers have also accessed OpenAI, Meta, Google, and Anthropic’s models but I don’t see Google’s stock declining by 11% as a result of this.
• The owners of these publicly available models like ChatGPT have no real control over who uses them and the idea that Baidu is in cahoots with the Chinese military as a result of this is absurd.
• This doesn’t mean that Baidu is not working with the PLA but there is no reason to conclude that there is any association based on this event.
• Baidu has recovered some of the losses in Hong Kong trading, but this underlines just how uninvestible Chinese technology has become.
• The sector is being targeted by both parties with the USA limiting its access to advanced technology while the policies of the Chinese state are dissuading foreign capital from investing in China.
• For the last several years, policy towards China has been fairly independent of who is sitting in The White House and so it seems likely that the current situation will persist for some time to come.
• This means a sluggish Chinese economy and a technology sector that is extremely cheap but with limited growth prospects that no investor outside of China wants to be involved with.
• Consequently, much as I would love to predict a bounce in the Chinese technology sector in 2024, this looks extremely unlikely to come to pass.
• Alibaba is the only stock I own in China and given the outlook and the geopolitical drivers, it is a sector that I have no desire to get further into despite the obvious value on offer.
• There are better options elsewhere even if one has to pay more for them.