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Artificial Intelligence in China: Shenzhen Releases First Local Regulations

By Alexander Chipman Koty, Dezan Shira

Shenzhen is often referred to as China’s Silicon Valley and is home to leading technology companies such as Tencent and Huawei. A pioneer in the application of new technologies, the city recently released plans to regulate and promote the development of artificial intelligence (AI), making it the first local government in China to introduce targeted policies for the sector.

On June 28, 2021, Shenzhen policymakers submitted a draft outline of the plan, the Regulations on the Promotion of Artificial Intelligence Industry of Shenzhen Special Economic Zone (the “Regulations”), to the local People’s Congress for review. The Regulations were included on a list of Shenzhen’s 222 key tasks to execute in 2021, but policymakers have not yet made the full contents public. According to a news release from Shenzhen municipality, the Regulations, along with regulations for the cell and gene industry, are key legislative projects for the city.

While not yet finalized, the Regulations seek to promote the use and development of AI in both the public and private sectors, establish a framework to govern the approval of AI products and services, and regulate AI usage ethics.

Promoting AI research and adoption

The regulations contain measures to encourage public institutions and businesses to invest in AI research and development and to actively put AI applications into practice.

In terms of research, the Regulations encourage universities and other higher education institutions to establish interdisciplinary AI courses, set up R&D labs, and cooperate with industry to educate the workforce and foster innovation. They also stipulate that salaries and other incentives for AI researchers should be flexible as a means to attract top talent.

Moreover, the Regulations instruct government bodies to use AI as much as possible in day-to-day operations, and to prioritize grant administration and procurement to AI leaders. These measures aim to accelerate the actual adoption of AI by government bodies.

To further encourage AI development, the Regulations seek to shorten the approval system for AI products and services, and to establish a risk management system that emphasizes trial and usage.

The Regulations specifically emphasize the development and adoption of AI in the healthcare sector. They encourage – but do not compel – healthcare institutions to create streamlined review systems for AI product testing approvals. Similarly, Shenzhen will allow healthcare institutions to test low-risk AI products and services in a limited manner.

Data usage oversight

According to the Regulations, Shenzhen will grant industry stakeholders improved access to data held by the government, to the extent that sharing such data complies with relevant laws. By sharing data with industry, the city hopes to speed up the development of AI products and services suited for local conditions.

To address privacy and data usage concerns, the Regulations state that the government will establish an AI ethics committee to offer guidance on how AI should be developed and used, and to safeguard residents’ data privacy rights. AI should be developed in a way that promotes economic and social development, per the Regulations, while also addressing ethical concerns in a standardized and coordinated way.

Besides privacy and ethics considerations, the Regulations aim to set up a standardized and comprehensive system to manage AI industry statistics collection and oversight. According to the Regulations, Shenzhen will establish and improve statistical classification standards for the AI industry, including through the creation of an AI industry classification catalog.

The growth of AI in China

Currently, China’s AI market is worth about RMB 150 billion (US$23.196 billion), and is projected to reach RMB 400 billion (US$61.855 billion) by 2025, according to iiMedia Resarch. By 2030, the Chinese government aims for the AI industry to create RMB 1 trillion (US$154.638 billion) worth of annual revenues, and have related industries generating RMB 10 trillion (US$1.546 trillion) annually.

Shenzhen will be at the core of China’s AI ambitions, along with other tech hubs like Beijing and Hangzhou. A number of China’s leading tech companies call Shenzhen their home, including Tencent, Huawei, ZTE, and DJI, alongside an extensive start-up ecosystem.

Nationally, China has a number of policies in place to stimulate the development of the AI industry. These include, among others, Made in China 2025, the Action Outline for Promoting the Development of Big Data, the Next Generation Artificial Intelligence Development Plan. Further, in 2019, the government expanded its national AI task force to include 15 leading companies in the field, with the goal for them to become national champions in different AI sectors.

Shifts in China’s regulatory environment

AI companies in China also need to contend with a shifting regulatory environment. Later this year, China’s legislature will likely pass the final version of the Personal Information Protection Law, which will regulate the use and management of personal data.

Further, Chinese regulators are increasing scrutiny of the country’s biggest tech companies. On July 6, China’s State Council released a statement of its intentions to increase oversight of data security and overseas listing policies, shortly after regulators opened an investigation into the ride-hailing giant Didi. Earlier in the year, Chinese regulators gave the tech giant Alibaba an unprecedented fine following an anti-trust investigation.

While China’s AI industry is a priority area for development and growing rapidly, businesses also need to adapt to a regulatory environment that is shifting in kind.

This article first appeared in Asia Briefing, published by Dezan Shira Associates. The firm advises international investors in Asia and has offices in China, Hong Kong, Indonesia, Singapore, Russia and Vietnam. Please contact them via info@dezanshira.com or the website www.dezshira.com.

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