#techAsia

July 13, 2023

Hello everyone, this is Akito from Singapore.

In the mid-1980s, when I was a child, my family moved from Japan to Europe for my father's work. This was in the midst of the Cold War, and I remember vividly that the Japan Airlines flight we took to Europe went via Anchorage, Alaska. However, when we returned to Japan a few years later, our plane flew over the Soviet Union as tensions were easing.

About 20 years later, I was in Silicon Valley as a Nikkei reporter and globalization was advancing at a breathtaking pace. Entrepreneurs flocked to the area from around the world, including China and Russia, while U.S. venture capitalists started investing in Chinese tech companies. Around the same time, American tech companies began using China as a major production base. Looking back, those were the "good old days," when the distance between markets was shrinking rapidly.

"In the long history of international relations, the 'good old days' you experienced in the Valley are rare," a former diplomat here in Singapore told me a few months back. He pointed to past examples of conflict between powerful nations, such as World War II and the Cold War.

Unfortunately, he also had a current example: the growing tensions between the U.S. and China.

Tangled up in tech

Those tensions are raising tough questions for U.S. tech companies. Many of them still depend on China for much of their sales, write Nikkei staff writers Akito Tanaka and Grace Li.

An analysis of financial data by Nikkei Asia shows that of the top 100 global companies in China by sales in the most recent fiscal year, 17 were U.S. tech-related companies.

Apple topped the list, while Qualcomm, a major U.S. chip company, depends on China for more than 60% of its sales. Electric car maker Tesla relies on China for over 20% of its sales.

This dependence on China has changed little despite efforts at decoupling the two countries' tech supply chains. Greater China remains Apple's second-largest source of revenue, following the company's home market. For Tesla, China's importance has grown by leaps and bounds. In 2022 it made 22% of its total sales in the country, up from 8% in 2018.

Like the former diplomat who sees tension as more common than harmony in the global order, many analysts expect the U.S.-China conflict to continue. Leaders of U.S. tech companies whose strategy has been to court the Chinese market will have to "accept that a new status quo is forming," according to one such expert.

Join us on July 20 for a webinar featuring Chris Miller, author of the award-winning book "Chip War," and Nikkei Asia's tech journalists. Register here for an inside look at the global battle for semiconductor dominance.

New rules for new tech

China plans to tighten its rules governing artificial intelligence as Beijing seeks to strike a balance between encouraging developers to advance the technology and a desire to control content, writes the Financial Times' Qianer Liu.

The Cyberspace Administration of China, the powerful internet watchdog, aims to introduce measures that will require companies to obtain approval before they release generative AI products, said people close to the regulators.

The update is part of regulations to be finalized as early as this month, according to people with knowledge of the move.

It contrasts with draft regulations issued in April that gave tech companies 10 working days to register their products once they had launched them. That document demands companies train their generative AI models with "veracity, accuracy, objectivity and diversity" and makes them almost fully responsible for the content their AI creates.

The latest move in China's AI regulatory regime signals how the government is struggling to reconcile a desire to develop world-beating technologies with its longstanding censorship regime.

Beijing is keen to formalize its regulatory approach to generative AI before the technology -- which can quickly create humanlike text, images and other content in response to simple prompts -- becomes widespread.

An eye for AI

China's artificial intelligence boom is proving a strong pull for U.S. companies, even as the two countries engage in tit-for-tat trade restrictions on tech-related goods and materials.

The recent World Artificial Intelligence Conference in Shanghai drew executives from Tesla, Microsoft and other big American companies looking to tap the country's emerging AI market, write Nikkei staff writers Tomoko Wakasugi and Shunsuke Tabeta.

"I think there's an immense number of very smart, very talented people in China," Tesla CEO Elon Musk said in a video message at the event. Google had a booth at the venue -- despite its services being blocked in China -- while executives from Microsoft appeared on stage.

U.S. tech has its sights set on China despite the souring relationship between Washington and Beijing because of the potential scale of its AI market, which market researcher IDC forecasts to more than double between 2022 and 2026 to $26.4 billion.

Channeling Asia

Netflix co-founder Reed Hastings once said in an interview with Nikkei that one of his favorite series is "Midnight Diner," a show based on a Japanese manga.

Now, the company is investing heavily to create new content in Asian markets like South Korea, Japan and India, recruiting new partners and searching for emerging talent to capture audiences in the increasingly important region, write Nikkei staff writers Rei Nakafuji and Kotaro Hosokawa.

Netflix co-CEO Ted Sarandos visited Seoul last month and met with production company executives and creators as part of the trip. The company signed a five-year contract with Yuji Sakamoto, who won best screenplay for the film "Kaibutsu" (Monster) at this year's Cannes Film Festival.

In India, Netflix signed a multiyear contract with director Hansal Mehta following the success of his crime drama "Scoop."

Netflix's Asia push comes as the platform faces cutthroat competition at home, slowing growth. Revenue increased about 4% on the year to $8.16 billion in January-March, falling short of market expectations. Net profit dropped 18% to $1.31 billion.