Raphael Stevens

Battling currency markets used to be considered unwise by central bankers and policymakers. Burning foreign-exchange reserves to take on the forces that push and pull a currency’s value was foolish, so the thinking went, and almost certainly futile. Orthodoxy held that a country seeking to defend its currency should raise interest rates, not sell reserves.This was put through a real-world test last year as America raised rates and the dollar climbed in value. Officials in many emerging economies deployed their holdings to defend local currencies. According to the imf, global foreign-exchange reserves fell by $1.1trn between the end of 2020 and the third quarter of 2022, with holdings of dollar-denominated assets accounting for half the decline.During the past few months, however, the process has begun to reverse, as the dollar has fallen and pressure on countries that intervene to defend their currencies has abated. The combined holdings of large Asian reserve holders—China, Japan, South Korea and Taiwan—have risen by $243bn since October, through a combination of revaluation and new purchases, to a total of $5.6trn. India’s foreign-exchange reserves are up by $42bn since October, too, recovering more than a third of their decline in the preceding 12 months.A recent paper by Rashad Ahmed of America’s Office of the Comptroller of the Currency and co-authors suggests that big reserve accumulators may, in fact, have reason to rebuild. Countries that entered 2021 with larger reserves and greater credibility in their capacity to intervene saw smaller depreciations in their currencies, all else equal. The authors calculate that additional reserves worth ten percentage points of national gdp were associated with 1.5% to 2% less depreciation in the domestic currency, relative to the dollar. Meanwhile, a number of countries which began this period with modest reserves have suffered deep depreciations. The Egyptian pound, which traded at 16 to the dollar at the start of 2020, now trades at 31. The official exchange rate of the Pakistani rupee has also weakened, from 154 to the dollar at the start of the covid-19 pandemic to 278 more recently. In both places black markets offer even weaker rates. Mr Ahmed and co-authors note that healthy foreign-exchange reserves could have another benefit. Removing the need for interest rates to be used to defend the currency enables “domestic monetary policy to better target domestic objectives”. The danger, however, is that currency intervention comes to be seen as a way to avoid more painful interest-rate rises. Although the imf is not as vehemently opposed to foreign-exchange intervention as it once was, it still draws some limits. As recently as October, around the time when the dollar peaked, Gita Gopinath, the institution’s deputy managing director, and Pierre-Olivier Gourinchas, its chief economist, warned developing economies not to use currency intervention in place of tighter monetary and fiscal policy.The experience of large currency-reserve holders during the dollar’s recent surge might give governments other ideas. Being able to resist the pressure to follow the Fed’s interest-rate movements is a goal held by many developing economies—and the more reserves they hold, the more resistant they seem to become. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Imagine, for a second, that you are a guest at the Mount Washington Hotel in the ski resort of Bretton Woods, New Hampshire. You have arrived to enjoy neither the slopes nor the hotel’s 18-hole golf course. Instead, you are here for the sort of conference that reimagined the international financial system at the end of the second world war. This time there is a green twist. Your job is to give the Bretton Woods twins—the imf and the World Bank—a sister in the form of a perfect climate-change lender. According to Nicholas Stern and Vera Songwe, two economists, by 2030 poor countries will need somewhere in the region of $2trn-$2.8trn a year of investment to combat climate change. The Climate Policy Initiative, a think-tank, estimates that in 2021 total climate investments, in both rich and poor countries, amounted to $650bn. In the catchphrase of the climate-change world, the financial system needs to “turn billions into trillions”. Getting these funds to flow, somehow, is the mission of your new Green Bank. The first question is a vexed one: who coughs up to pay for the lender? The struggle to create a climate-finance framework started at the so-called Earth Summit in 1992. The summit divided the world into two groups, the Annex II countries and the rest. Because of their historic emissions, the mostly rich Annex II countries were given the responsibility of paying up. The problem with the division is not the principle—that polluters should pay—but that it is stuck in the past. Israel, Singapore and Qatar are now affluent, and more responsible for emissions than many of the original Annex II gang. According to analysis by the odi, another think-tank, Kuwait, the United Arab Emirates and South Korea are also candidates for a revamped Annex II-style grouping. The new climate lender should establish a clear threshold for historic emissions per person. Once a country breaches this, it should have no choice but to pay up. Next on the agenda: how to get the most out of the Green Bank’s balance-sheet. The initial capital subscription, however generous, will never be enough for the vast scale of climate change. The Green Bank will have to turn to leverage. Too much borrowing, though, and the lender could find itself in hot water. A group of poor countries has railed against the idea that the World Bank could borrow more to tackle climate change. Such a policy risks undermining the rationale for the development bank, by raising its own cost of capital to the point where its loans can no longer be made on advantageous terms. The aaa-rating of the World Bank, higher than the American government, may be a tad too cautious for our new climate lender. The Green Bank can afford to lever up. This big balance-sheet will have to be used well. One option to get the most out of its firepower is to offer debt relief, allowing poor countries fiscal space to invest themselves. But just as the imf does when it provides assistance to highly indebted countries, the new climate lender would have to insist on some degree of reform in exchange. Instead of measures to right the fiscal ship, the Green Bank would want to ensure the firepower is used for environmental good, not giveaways or political patronage. One model could be “debt-for-nature” or “debt-for-climate” swaps, which currently excite donors, and involve offering debt relief in exchange for environmental protections or climate-change pledges. The problem with such arrangements is that they are inefficient: they in effect subsidise creditors which do not take part in the swap, since these creditors benefit from a borrower with more resources to repay them. Instead, the Green Bank should focus on “unlocking private finance”, to return to the phraseology of green wonks. Clean-tech investment is capital-intensive; the problem is that poor countries face a much higher cost of capital. The Climate Policy Initiative calculates a solar farm in cloudy Germany needs a return of 7% to be viable, compared with 28% for one in sunny Egypt. Exchange-rate fluctuations and the riskier investment climate offset gains offered by better weather.Here is where the toolbox of the World Bank may be able to help. The Green Bank could offer concessional loans. Or perhaps the new lender could even take on a bit more risk, by taking stakes in projects. This would mean accepting the “first loss” if things did not work out, but also gaining some of the upside if they went well. Financiers are often frustrated that the World Bank has not done more to seize the opportunity of such “blended finance”, which combines high-minded philanthropy with a degree of old-fashioned money-grubbing. Green dreamsThe most radical option, though, would be to give up on the Green Bank entirely. When it comes to cutting out carbon dioxide, the perfect climate lender may well be no climate lender at all. For the benevolent social planner, who does not have to worry about political constraints, the most efficient way to get to net zero would be some sort of global carbon tax, with the proceeds distributed to countries based on their population. Emissions reductions would not be dictated by a Bretton Woods-style institution but by the logic of the market: going to the lowest-cost opportunities to reduce emissions, whether in Somaliland or Sweden. The proceeds of the tax would mostly flow to the populous poor world, which could use them to adapt to a warmer planet, if it desired.Such a vision might sound more utopian than a new Bretton Woods institution, or reforming ones already in existence. Yet talks over Article 6 of the Paris agreement, which would create a version of an international market in carbon offsets under the un’s auspices, are ongoing. The eu, China and India—three of the world’s four big emitters—already have an emissions-trading scheme in place, or will implement one this year. According to the World Bank, nearly a quarter of the world’s emissions are covered by some form of carbon pricing. Even without a new institution, climate-change dreams are fast turning into reality. ■Read more from Free Exchange, our column on economics:The case for globalisation optimism (Feb 16th)Google, Microsoft and the threat from overmighty trustbusters (Feb 9th)The AI boom: lessons from history (Feb 2nd)For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter More

Any fool, with a bit of luck, can make a spectacular return by betting on a coin flip. Yet they risk losing everything in the process. The ultimate outcome for investors is a high return adjusted for the risk associated with it, an idea most famously captured by the “Sharpe ratio”. This divides the expected return of an asset, minus the risk-free rate that an investor could earn by parking their money in super-safe government bonds, by its standard deviation, a measure of the return’s volatility. A ratio above one is considered good. The Sharpe ratio of a double-or-nothing coin flip is negative. These sorts of calculations are on the minds of Western financiers who have made, or plan to make, investments in China. Over the past three years risks associated with the country have piled up. Power seems more concentrated than ever in the hands of Xi Jinping, China’s leader. His attitude to business is capricious: he has kneecapped tech firms including Alibaba and Tencent; Ant Group, an affiliate of Alibaba, was forced to call off its American initial public offering in 2020. A string of top executives have vanished. The most recent disappearance is that of Bao Fan, boss of China Renaissance Holdings, who was reported missing on February 17th. The investment bank’s shares plunged by 50%, before recovering a little. Relations between China and the West continue to sour. America has introduced vast subsidies to boost home-grown industry. This month it shot down an apparent Chinese spy balloon. The prospect of China eventually invading Taiwan, and the West’s readiness to impose sanctions, as illustrated by the measures imposed on Russia, raise the prospect of further economic estrangement between the two powers.Yet China’s rewards are tantalising. This has long been true, but not quite to the extent it is now. The country is opening up after years of hair-trigger lockdowns. Given its economic heft, a rebound in activity as Chinese people start visiting restaurants, travelling and shopping again means that the country alone could power much of global growth in 2023 and 2024. Maybe exposure to the growth juggernaut, adjusted for all of these risks, is worth it. There are noisy proponents of both sides of the position. On February 15th Charlie Munger of Berkshire Hathaway, a conglomerate, who is famously bullish on China, praised local firms as being “better and stronger” than their American equivalents, and available at cheaper prices. He also downplayed the idea that China might one day invade Taiwan. In contrast, analysts at JPMorgan Chase, a bank, and Jeff Gundlach, a bond investor, have called China “uninvestible” (although JPMorgan’s analysts later changed their minds).In private, however, financiers are more cautious, and are cutting back their exposure to the country. The boss of a private-equity fund says that, although their firm still sees opportunities in China, it is tailoring its approach; avoiding any businesses that could end up ensnared in, say, nasty supply-chain disputes. Berkshire Hathaway reduced its stakes in byd, a Chinese electric-vehicle manufacturer, and tsmc, a strategically important Taiwanese semiconductor firm, in the last quarter of 2022. The most comprehensive information on foreign investment is found in balance-of-payments data, which track financial and trade flows. These showed growing “portfolio flows”, such as investments in stocks or debt securities, into China in recent years, before turning sharply negative in 2022. They are only published with a lag: the latest figures do not capture reopening. The real-time evidence on flows is mixed. While stocks are up and some evidence shows modest inflows to mutual funds, Bloomberg data suggest continued outflows from exchange-traded funds so far this year.This indicates a certain trepidation among Wall Street’s finest. Even if they do not like to say so in public, worries about Mr Xi and Taiwan prevent them from embracing China. Perhaps the best way for Western financiers to get rich is not by putting their capital at risk by investing in Chinese firms or stocks, which might get clobbered on a government whim, but by offering the investing services Wall Street does best to rich Chinese investors. Last month it was reported that the assets in China managed by Bridgewater, an investment firm which first launched onshore funds in 2018, had doubled to almost $3bn. Such work has the added advantage that it does not need to be justified by calculations involving the Sharpe ratio.Read more from Buttonwood, our columnist on financial markets:Investors expect the economy to avoid recession (Feb 15th)Surging stocks undermine a hallowed investing rule (Feb 7th)The last gasp of the meme-stock era (Feb 2nd)For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

After three years of pandemic shutdowns, reopening booms, war, clogged supply chains and nascent inflation, European policymakers thought that 2023 would be the year the old continent returned to a new normal of decent growth and sub-2% inflation. Europe’s economy is indeed settling down. Unfortunately, though, the new normal is considerably uglier than economists had expected.Start with the positives. The euro zone has proved remarkably resilient, considering the shock of Russia’s invasion of Ukraine and the energy crisis. Gas is now cheaper than it was on the eve of the conflict, after prices spiked last summer. Governments were not forced to ration energy as had been feared at first, in part thanks to unseasonably warm weather. Headline inflation, having reached a record 10.6% in October, is falling.Nor, as doom-mongers predicted, has industry collapsed because of the cost of fuel. In Germany, energy-intensive factories have seen output drop by a fifth since the war started, as imports replaced domestic production. But production overall had fallen just 3% by the end of the year, in line with the pre-pandemic trend. The latest ifo survey shows manufacturers as optimistic as they were before covid-19.Although Germany’s economy shrank slightly in the fourth quarter of 2022, the euro zone defied expectations of recession. According to the European Commission’s latest forecast, the bloc will avoid a contraction this quarter, too. Recent sentiment surveys support this projection. The widely watched purchasing-managers’ index (pmi) has risen in recent months, suggesting a rosier picture is emerging in manufacturing and, especially, services. Economic stability keeps people in jobs. The number in work across the bloc rose again in the fourth quarter of 2022. The unemployment rate is at its lowest since the euro came into existence in 1999; in surveys, firms indicate appetite for new workers. And jobs keep people spending. Despite high energy prices, consumption contributed half a percentage point to quarterly growth in the second and third quarters of 2022. In many countries, “the energy shock takes time to affect consumers because high prices are only passed on with a lag,” says Jens Eisenschmidt of Morgan Stanley, a bank. “In the meantime, financial help from governments has helped households spend.”The question now is how long they will keep spending. Households began to tighten their purse strings in the fourth quarter of 2022. In Austria and Spain, for which detailed gdp figures are available, consumption dragged down quarterly growth by a percentage point. Retail trade in the euro zone fell by 2.7% in December, compared with the month before. State handouts and price caps will be withdrawn this year. Consumption could become a problem.Meanwhile, inflation is proving stubborn. “In the eu we have 27 different ways in which wholesale energy prices are passed on to consumers, which is a nightmare to forecast,” sighs a commission official. Some price pressure may still be on the way—as looks to be the case in Germany, where energy prices in January rose by 8.3% from December. Even if wholesale prices stabilise at current lower levels, household prices may prove erratic. Europe’s strong jobs market could add to inflation. High prices and labour shortages, which are likely to worsen as oldies retire and fewer youngsters enter the workforce, are pushing up pay demands. In the Netherlands wages jumped by 4.8% in January, compared with a year earlier, after increasing by just 3.3% in 2022 and 2.1% in 2021. Germany’s public-sector unions are threatening more strikes. They want a whopping 10.5% raise, which could set the tone for comrades elsewhere. Data from Indeed, a hiring website, show that wages in the euro zone tend to follow underlying, or “core”, inflation. This shows no sign of softening. The consumer-price index, excluding food and energy, rose by 7% in the year to January. Services, in particular, face steeply rising costs, according to the pmi survey, which may lead to further price increases. This leaves the European Central Bank with little choice but to keep interest rates high. Markets expect them to rise from 2.5% to to 3.7% in the summer. Funding for firms and households is thus set to get more expensive, hitting investment. Credit standards are already tightening, according to the bank’s lending survey. And most of the impact of monetary tightening, Mr Eisenschmidt argues, is yet to be felt.The euro zone may have escaped recession so far, but its prospects—stubborn core inflation, high interest rates and a weak economy—are hardly pleasant. The imf predicts 0.7% growth in 2023; the commission forecasts 0.9%. Even this might be optimistic. America faces equally stubborn inflation, and China’s reopening has not provided much of a boost to the bloc. Welcome to the grim new normal. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Figures published earlier this month showed that the U.K. GDP contracted by 0.5% in December, as the economy flatlined over the final quarter of 2022 to narrowly avoid a technical recession.
Brough, head of the pan-European small and mid-cap team at British asset manager Schroders, said that his interactions with businesses suggested greater resilience than the weak GDP figures and official forecasts imply.
Real business investment in the fourth quarter of 2022 was only fractionally higher than before the Brexit vote, but recent trends look more hopeful, according to Kallum Pickering, senior economist at Berenberg.

People walk outside the Bank of England in the City of London financial district, in London, Britain, January 26, 2023.
Henry Nicholls | Reuters

LONDON — The U.K. has thus far avoided a widely anticipated recession, and the signs from the business world are that the economy may be holding up better than feared, according to veteran Schroders fund manager Andy Brough.
Figures published earlier this month showed that the U.K. GDP contracted by 0.5% in December, as the economy flatlined over the final quarter of 2022 to narrowly avoid a technical recession.

The Bank of England projects that the British economy has entered a shallow recession in the first quarter of 2023 that will last for five quarters, however, as energy prices remain high, and rising market interest rates restrict spending.
But Brough, head of the pan-European small and mid-cap team at British asset manager Schroders, said that his interactions with businesses suggested greater resilience than the weak GDP figures and official forecasts imply.
“The consumer’s still out there spending. Every number is a surprise to the market, isn’t it? I walk up and down the streets or cycle into work, [and] there’s still lots of people out there, and people are still buying houses, still buying cars, they’re still shopping,” he told CNBC’s “Squawk Box Europe” on Wednesday.
“There’s seven wonders of the world, and the eighth wonder of the world is how GDP is calculated,” he said, adding that he was “surprised” by the scale of the December contraction.

In their latest earnings reports, British banks mostly increased their loan loss provisions — money set aside to insure against customers defaulting on their debts.

Brough advised the market against reading this as a sign that tightening financial conditions are heightening default risks among U.K. consumers, and said that companies he is speaking to are actually “doing okay.”
“Underneath companies’ profitability x-minus today, we’re seeing pretty good dividend increases, pretty good earnings statements, so, underlying, I think the economy is in a lot better shape. And it’s very easy to alight on something like a Lloyds Bank and the other financial companies and say things are tough, but actually it’s a mechanical calculation, this provision.”
Lloyds Bank on Wednesday announced a £2 billion ($2.42 billion) share buyback and increased its final dividend to 1.6 pence per share. It was the latest in a string of major U.K. businesses to report strong fourth-quarter earnings and boost capital returns to shareholders.
‘Signs of life’ in business investment
Uncertainty over future relations between Westminster and Brussels have hammered business investment since the U.K. voted to leave the European Union in 2016, in turn hampering productivity expansion and adding to the direct costs of Brexit on the U.K. potential growth.
Real business investment in the fourth quarter of 2022 was only fractionally higher than before the Brexit vote, but recent trends look more hopeful, according to Kallum Pickering, senior economist at Berenberg.
“Albeit from a low base following the pandemic-related slump, real business investment increased by c10% during 2022 — with a 4.8% [quarter-on-quarter] rise in Q4 alone,” Pickering said in a research note on Tuesday.
“It remains an open question whether momentum can remain strong in the coming quarters as firms brace against the headwinds of tighter financial conditions and sky-high energy costs, but firms have both the need and the means to further step up investment.”

He added that the outlook “appears favourable,” if political uncertainty continues to ease — with Prime Minister Rishi Sunak’s government moving away from the populism of fallen predecessors Liz Truss and Boris Johnson, while the main opposition Labour Party shifts to the center under “reliable pragmatist” Keir Starmer — and the U.K. avoids a bad recession.
Pickering also highlighted that U.K. businesses are “lacking confidence, not opportunity,” as the weakness in business investment cannot be attributed to concrete factors, such as difficulty financing capital spending or a lack of viable technologies that may help production processes.
“Non-financial corporations are sitting on deposits equivalent to c23% of annual GDP. Non-financial corporations’ debt is low too. At c75% of GDP in late 2022, debt is at late-1990s levels, well below the GFC peak of 103% in 2009 and far below the current Eurozone level of c145%,” he highlighted.
“With its paltry productivity performance in the post-GFC era — output per worker rose by just 5.5% between Q2 2008 and Q3 2022 — the U.K. is desperate for a wholesale uplift in its capital stock.”

In the six years of “noise and chaos” since the Brexit vote, the diminishing risk of a retaliatory trade confrontation with the EU should offer comfort to U.K. businesses and financial markets, and Pickering suggested better times are ahead.
“It is normal for politics to go awry from time to time and for the economy to suffer as a result. Before the UK’s latest wobble, this last happened in the 1970s, but once things started to get back on track by the early 1980s, economic performance improved rapidly,” he said.
“With any luck, the worst of the political uncertainty that has held back business investment since the Brexit vote is coming to an end.”
With business investment accounting for around 10% of the U.K. GDP, a recovery to pre-Brexit-vote growth rates of around 5.5% could add between 5 and 6 percentage points to annual GDP growth over the next few years, Berenberg forecasts.
“Is that feasible? For a while, yes. Facing persistent labour shortages and a host of global supply frictions, U.K. firms badly need to add to domestic capacity in order to meet growing demand,” Pickering said.
“A period of more settled politics in the years ahead can provide a suitable backdrop for them to do so.”

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Traditional savings accounts are going up against stocks.
And, the winner may be your neighborhood bank for the first time in years, according to Wall Street forecaster Jim Bianco.

He contends rising interest rates are giving investors safer ways to generate income.
“Cash is no longer trash. That was a two-decade old meme that doesn’t apply,” the Bianco Research president told CNBC’s “Fast Money” on Wednesday. “Cash could actually be somewhat of an alternative where it was just a waste of time throughout the 2010s. It’s no longer that anymore.”
He uses the 6-month Treasury Note, which is yielding above 5% right now, as an example. Bianco believes it will soon rise to 6%.

‘Suck money away from the stock market’

“You are going to get two-thirds of the long-term appreciation of the stock market with no risk at all,” added Bianco. “That is going to provide heavy competition for the stock market. That could suck money away from the stock market.”
His latest comments follow the Fed minutes release from the last meeting. The Fed indicated “ongoing” rate hikes are necessary to curtail inflation.

The Dow and S&P 500 closed lower following the minutes while the tech-heavy Nasdaq eked out a small gain. The S&P 500 is now on a four-day losing streak, and the Dow is negative for the year.

Stock picks and investing trends from CNBC Pro:

“Investors are going to have to start thinking about the idea that we have a 5% or 6% world,” noted Bianco.
He believes inflation is unlikely to meaningfully budge in the coming months.
“A lot of people are starting to think… the Fed just is not going to go one extra rate hike, but they’re going to go many extra rate hikes,” Bianco said. “That’s why I think you’re starting to see the stock market wake up to it.”
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Big tech companies in the U.S. and China rushed this month to announce they are working on artificial intelligence tools similar to ChatGPT.
Their announcements often referenced ChatGPT, while disclosing few details on what they themselves were working on.
Here’s what businesses say they’re doing with the tech.

A display at the World Artificial Intelligence Conference (WAIC) in Shanghai, China, on Friday, Sept. 2, 2022.
Bloomberg | Bloomberg | Getty Images

BEIJING — The business story of ChatGPT right now is more about what isn’t known.
Big tech companies in the U.S. and China rushed this month to announce they are working on similar AI tools. Their announcements often referenced Microsoft-backed ChatGPT, while disclosing few details on what they themselves were working on.

The artificial intelligence-powered chatbot ChatGPT has taken the tech world by storm in the last few months with its ability to generate everything from poems to business strategies in a human-like conversation.
Still, analysts say the tech is transformative, something that’s also been said about blockchain and the metaverse.

Competitive landscape

Here’s what companies — including those in China — are doing in this specialized area of AI:
U.S. startup OpenAI raced to beat rivals by launching ChatGPT in November, according to The New York Times, citing sources. The public interface skyrocketed in popularity for everything from homework help to strategy development.
OpenAI did not respond to a request for comment.

ChatGPT for business software

Database software startup PingCap already has a ChatGPT-based product on the market. The company has offices in Beijing and San Mateo, California.
PingCap launched “Chat2Query” for customers outside China in January that uses a publicly available application programming interface from OpenAI.
The product lets clients analyze in seconds their companies’ operating data — such as best-selling car models — without needing to know a computer programming language, said Liu Song, vice president of PingCap. He said Chat2Query is free for clients processing up to 5 gigabytes of data.
“We think the revolution may not be in AI search but in every business,” he said in Mandarin, translated by CNBC. However, he noted that those data need to be organized in a standardized way.

We think the revolution may not be in AI search but in every business

PingCap, vice president

Baidu, the Chinese search engine and tech giant, said Wednesday its AI chatbot project will be embedded into search first, and opened to the public in March.
The product is named “Ernie bot” in English or “Wenxin Yiyan” in Chinese, the company said previously.
While little is known about Ernie bot’s capabilities — and how they compare with ChatGPT’s — Baidu-backed video streaming platform iQiyi has announced plans for connecting to the bot for search and AI-generated content. Baidu-backed electric car startup Jidu — which hasn’t started delivering cars yet — also said it plans to incorporate Ernie bot.

Alibaba is scheduled to release quarterly earnings on Thursday evening. The Chinese e-commerce and cloud giant said it is internally testing ChatGPT-style technology, and did not provide a timeline for launch. However, Alibaba said it has been working on related AI tech since 2017.
Chinese e-commerce rival JD.com did not have a launch date either, but said its “ChatJD” will focus on retail and finance. It will assist with tasks such as generating product summaries on shopping sites and financial analysis, the company said.
Tencent, which operates the ubiquitous Chinese messaging app WeChat, said in a statement it continues to research natural language processing. That’s the field within artificial intelligence on which ChatGPT is based.
While ChatGPT this month became a trendy topic in China, even for state media, analysts note the country’s censorship and data regulations may affect how similar tech develops in the country. Beijing has emphasized building up its own technological abilities.
Nikkei Asia on Wednesday reported, citing sources, that regulators told Tencent and Alibaba-affiliate Ant Group not to offer access to ChatGPT services on their platforms, either directly or via third parties.
The report did not specify which regulators. China’s cybersecurity regulator, Tencent and Ant did not immediately respond to requests for comment.
In terms of technical ability, however, the U.S. is only months — not years — ahead of China in that AI research, a Microsoft executive told journalists this month. ChatGPT isn’t available in China, although Microsoft operates in the country.
The executive said that state-backed Beijing Academy of Artificial Intelligence is one of three global leaders in artificial intelligence research, along with Google’s DeepMind and Microsoft’s partnership with OpenAI.

A.I. creative content

Kunlun Tech expects to release an open source Chinese version of ChatGPT, as early as the middle of this year, its president Han Fang told CNBC last week. Open source software is available to the public and allows anyone to see, change or distribute the code.
The company, which generates most of its revenue outside China, previously said its niche web browser Opera is planning to incorporate ChatGPT into its products, although it’s unclear when or with what functions.
Kunlun Tech is already working in the field of AI-generated content, such as music.
Fang said his commercialization plan is to first develop those AI tools. Creators can then use the tools to make their own work and publish them on designated platforms for public viewing, following which the company can then sell ads, he said. He expects to launch the platforms later this year.

Transformative potential

Fang said he was directly inspired by OpenAI’s early version of ChatGPT tech in 2020.
“We all talk about the metaverse, but who is in it?” he said in Mandarin, translated by CNBC. “It only changed our news. It didn’t change our lives.”
In contrast, he said generative AI tech can immediately provide value since it operates where users are already producing and consuming content. Generative AI can also lower production costs, allowing animators and speakers of minority languages to easily create their own content, Fang said.

The implications for jobs and industries remain significant.
The arrival of AI such as ChatGPT means many “cognitive tasks” look easier to automate than manual work such as in factories — a surprise to many economists, said Anton Korinek, professor at the Department of Economics and Darden School of Business, University of Virginia.
“The impressive but also little bit scary part is that the power of these systems has been progressing steadily over the past couple of years,” he said, adding that he expects more powerful AI tech this year alone.
“That will really imply that these models will have a revolutionary impact on our economy, on productivity, on labor markets and ultimately on society in general.”
— CNBC’s Arjun Kharpal and Lauren Feiner contributed to this report.

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