CNBC's "The China Connection": Chip Shortage? This AI Startup Isn't Sweating U.S.-China Tensions

Following his time in data science at Meta and neuroscience research at Caltech, Jerry Ye mentioned that under the urging of an investor, he went back to China in 2017 intending to launch a worldwide enterprise focused on artificial intelligence.
The previous week, his company Whale disclosed it secured $60 million in a series C financing round, which featured participation from Bosch Ventures.
“Regarding China, we do not observe any deficiency in terms of AI computational capabilities,” stated Ye.

This report comes from this week’s edition of ‘The China Connection’ newsletter, offering you an understanding and examination of factors shaping the globe’s second-biggest economy. Every week, we will delve into major corporate news in China, provide details on market shifts, and assist you in preparing for the upcoming week. Interested? You have the option to subscribe.
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The big story

Learning about artificial intelligence from Chinese companies reveals a significantly different perspective on its applications compared to what is widely known.

Following his time as a data scientist at Meta, Caltech graduate Jerry Ye went back to China in 2017 upon the request of an investor, aiming to establish a worldwide AI enterprise.

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The company called Whale provides AI-driven software solutions along with associated hardware aimed at assisting retail businesses. Notable among their clientele are well-known brands like Starbucks, Xiaomi, and Unilever. Recently, Whale disclosed that they secured $60 million through a Series C financing round which was backed by investors including Bosch Ventures, Singtel, and MDI Ventures. They have established Hangzhou as their main office for operations within China and designated Singapore as their international hub.

This week, I connected with Ye during his brief stopover in Beijing, where he maintains a modest team presence. The conversation has been streamlined and adjusted for better understanding.

How has the U.S.-China trade war affected global economics?

Even with U.S.-China tensions, we believe there’s still a worldwide opportunity. After all, business is business. Our customer base spans globally: Procter & Gamble, Watsons, Starbucks.

Who will come out on top in the AI race?

The biggest two markets remain the U.S. and China. Each of these regions will experience growth in applications differently: through marketing and sales channels in China; whereas in the U.S., focus areas will be narrower within specific industries like transport or law. It’s probable that Southeast Asian countries will tend towards adopting models seen either in the American or Chinese market contexts.

What’s hindering AI progress? Is it advanced semiconductors?

Regarding China, we do not observe any deficiency in artificial intelligence computational capabilities. All the cloud providers possess substantial training resources. Many AI firms no longer engage in extensive model training these days.

In the end, on-device chips—commonly linked with edge computing or integrated processors found in gadgets such as smartphones and household appliances—are growing robust enough to execute AI models while safeguarding data privacy. Over time, much of the rivalry will shift to the edge rather than taking place primarily in data centers.

In which area will AI initially generate revenue for companies?

Marketing and sales, since they closely track financial outcomes, have more straightforward metrics for measuring ROI. Implementing AI in these areas over a span of one week should yield observable benefits by the seventh day.

What implications does this have for the future of content?

At its core, marketing revolves around communication, aimed at closing the gap between how customers perceive a product and how brands promote their products.

We frequently discuss customization. However, previously, we lacked enough material and resources to provide individualized content for everyone. Thanks to AI’s enhanced comprehension and algorithms connecting the material with customers, this process has become quicker and simpler.

Definitely, generative AI offers us numerous opportunities to produce a vast number of videos.

Artificial intelligence also allows us to share distinct snippets of real-time images and videos on social platforms. This method is now being used more frequently for ad creation.

However, if you rely heavily on generative AI, they often spread a significant amount of false information. The majority of these platforms tend to favor non-generative AI content. Personally, I believe authentic live videos remain essential. Generative AI struggles greatly with portraying genuine emotions and the true human element.

What applications of AI are companies utilizing currently?

Our business provides service for Starbucks across China and Southeast Asia.

Every time you buy a Starbucks coffee, significant amounts of artificial intelligence are employed to enhance the customer experience. Currently, customers receive their coffee order within 5 minutes about 98% of the time. When a store gets overly crowded with both online and in-person orders, AI might reroute some of the online requests to another nearby outlet.

How much revenue is Whale generating? What are your expenses?

In the past three years, our company has expanded by approximately 100% each year, and we anticipate sustaining this rate of growth over the coming two to three years. Last year, our revenues reached 230 million yuan ($31.39 million), with an expected increase to 400 million yuan this year. Currently, we serve roughly 500 business clients.

We allocate approximately 1 million yuan per month for operational expenses within China—however, outside of China, these costs are higher. As such, our overall expenditure stands at roughly 3 million yuan monthly [equivalent to 36 million yuan annually].

The most significant hurdle we face is adhering to each area’s specific requirements for data privacy and security.

What is the top choice for large language models in AI?

Various models possess distinct capabilities. With Claude, these include excelling at website creation and producing PDFs. In contrast, Gemini specializes in handling videos. This situation is akin to possessing multiple experts with doctorates across various fields. Most of our enterprise clients prefer not to limit themselves to just one type of model.

Many companies aim to maintain the confidentiality of their information. For this reason, they opt for open-source models that can be hosted within their own data centers.

Is there possible room for an artificial intelligence gadget,

such as glasses

?

The primary obstacle for many devices often lies in their batteries rather than the artificial intelligence they contain.

Much of the equipment has been around for quite some time now.

Perhaps a new smartphone. What matters most is the app. Applications could dominate the significant share of AI profits. In contrast, cloud services might capture only 5% to 10%, followed by hardware. A substantial portion—about 90% to 95%—could be claimed by various software layers, particularly those housing AI apps.

What are your thoughts on the ex-Apple designer?

Jony Ive’s agreement with OpenAI

?

It won’t be easy. There’s a camera monitoring it. It’s beneficial for major corporations to experiment with various AIs. They possess greater capability to explore new possibilities.

Top TV picks on

Theodore Shou, who leads Yiyi Capital, talks about the robust performance recently seen in the initial public offering (IPO) market in Hong Kong. He suggests that the difference in stock valuations between mainland China and Hong Kong might decrease as more Chinese firms choose to go public through the Hong Kong Stock Exchange.

Ramón Barúa Costa, CEO and director of Aclara Resources, discusses global demand for rare earths, China’s dominance in critical minerals, and the strategic importance of rare earths in the energy transition.

Lihan Zhou, who serves as both the CEO and co-founder of Mirxes—a biotechnology firm headquartered in Singapore—speaks about the company’s initial public offering in Hong Kong along with its potential for expansion.

Need to know

The U.S. and China are holding discussions.

Last week, Chinese Vice Foreign Minister Ma Zhaoxu and U.S. Deputy Secretary of State Christopher Landau held a conversation. Both parties concurred on maintaining open channels of communication, as reported.
readouts on Friday
Although no details were provided, this conversation marked the first one held after the U.S. and China decided to halt additional tariffs for now this month.

Industrial profits in China increased in April.

Official statistics released on Tuesday indicated that profits increased.
3% year on year
In April, major industrial firms experienced growth surpassing the 2.6% noted in March and continued expansion regardless of U.S. tariffs. However, profit margins at electric vehicle manufacturers are under greater strain following this trend.
This month, BYD unveiled numerous price cuts.

Xiaomi aims to compete with both Tesla and Apple simultaneously.

The Chinese mobile phone firm on Thursday
revealed a new chip
it asserts outperforms Apple based on specific criteria — all within a much more affordable phone than the iPhone 16 Pro. Xiaomi additionally
hinted at a new SUV named the YU7
, where analysts anticipate increased rivalry for Tesla in the Chinese market.

In the markets

On Wednesday, Chinese and Hong Kong equities showed varied performance as investors kept evaluating the positive sentiment surrounding U.S.-EU trade relations.

Mainland China’s
CSI 300
increased by 0.11%, whereas Hong Kong’s
Hang Seng Index
—which encompasses significant Chinese corporations—dropped 0.4% by 11 a.m. local time.

The yield for the 10-year Chinese government bond benchmark stands at 1.672%.

The offshore Chinese yuan was recently trading at 7.1971 per dollar.

—
Lee Ying Shan