♪ emily: he is one of the most well-known tech titans of china. kai-fu lee started at apple, then microsoft come been sparked a lawsuit when he left to run google in china. facebook and twitter were blocked by the government, and a --ing chinese tech is seen now he is starting a fund to invest in the next generation. joining me today on "bloomberg studio 1.0," kai-fu lee. you came to the u.s. in 1973.

you were 12 years old and moved to tennessee. tell me about what must have been culture shock in that moment. kai-fu: i did not speak a word of english, but people were extremely friendly come a southern hospitality. -- friendly, southern hospitality. i made a lot of friends. i was reading my chinese books. emily: you caught up, went to columbia, phd at carnegie mellon . it were working on speech recognition, which is now the forefront of new technology. kai-fu: also artificial intelligence, machine learning. it was an exciting age when there is so much unknown and naïve optimism, but it is gratifying to see that coming to the real world. you join apple in 1990. how closely did you work with steve jobs?

kai-fu: i always say i was there between jobs. , and after ie left left, he came back. we did have some intersection. he did call me to see if i would go back to apple, but at that time it just looked too scary. apple'sy was predicting doom and i got this job offer from microsoft. emily: you went on to work at microsoft in beijing, then google. microsoft was not happy, and they sued you kai-fu:. kai-fu:that's right -- they sued you. kai-fu: that's right. everybody was reporting it. i could not escape it. i had a flight and said i was going to get on the plane and read the magazine and take a break, and the magazine was handed to me. there i was on the cover, the lawsuit, but of course google and i had done nothing wrong and to munch -- two months later was

allowed to go to work at google. concerned youre would take intellectual property and things you had worked on, right? claim, butt was the i was working on something totally different. afraid of further exodus. they felt that would be the best way to stop the next 5000 people from going, but that did not work. emily: google faced its own challenges in china. when you were running google in china, you got shut down. kai-fu: we made a decision we would comply by government law. that allowed us to grow our toiness from 9% market share 24% and search revenue from nothing to almost $1 billion, so i thought we were given space to do our business, but ultimately i think the legal restrictions and google's values didn't allow google to continue to operate.

down was theg shut beginning of a series of shutdowns. facebook and twitter were blocked. kai-fu: none of these companies would have succeeded in china because american companies were just too far removed from the chinese users needs. google agreed to create a chinese interface, but that was in the way of the silicon valley way of the world where one ,latform would serve the world and that egocentricity would have caused every american company to fail in china. the new companies that rose up in china in a very tough competitive environment, i think wechat is a better product than thebook messenger and chinese payment system fully connected, frictionless,

micro-payment come up here too. is clearly better than paypal and credit cards. many people compare it with gladiators in the colosseum and i am afraid the silicon valley companies are not gladiators. they would get killed in china. emily: he left google in 2009, then google left china. what happened. ? .ai-fu: i was surprised new york times called me and asked me for a quote. they sit google just left china. i said i had no idea. i can't give you a quote. then i read about it in the news. didn't want to respond to the censorship demands of the chinese government. was that the right call? kai-fu: it is hard to say what is right or wrong. google is a value-centric company, so it will do things according to its values which we all respect, but on the other

hand makes it impossible for the company to do business in china, and i would prefer to seek wouldment, and engagement give users more choices, and that would ultimately i think lead to the competitiveness and better products, but that requires following the law, and if you choose not to, then i guess you would have to exit. emily: do you think a google will return to china? butfu: it is hard to say, the core products cannot return and less they follow laws and regulations. some secondary products, facebook's oculus is launching in china. i think some of google's new products that are maybe not as core could potentially be launched as an experiment. i think google is a great company and i would like to see them launch products everywhere. emily: facebook has been making

overtures, shaking the right hands. instagram and facebook are still blocked. do you see a scenario where facebook can have a substantial presence there? i wouldif i were mark definitely launch oculus and work hard and getting more chinese companies to see facebook as a platform for ads so that chinese companies can project positive images worldwide. i would consider if i were google or facebook launching the open source ai projects in china. china wants to be a world leader in ai, so there is a case where the interests are aligned, so it is always better to start in an area where the interests are aligned rather than going to an area where there is conflict and values. ♪ -- in values. ♪ emily: when you think of the

approach the trump administration taken to the chinese government? ♪

emily: president xi jinping and the government have been more rather than less strict when it comes to the internet, shutting down vpn's for example. is it a mistake? kai-fu: i don't know what the causes are of this. access the world information. think one thing important to realize on the u.s. side is don't assume every chinese to get onlly wants facebook and google. if you do a survey, the great majority don't know these sites exist, and those who do generally think they can do without them. i think people have to understand that the chinese substitutes are really, really strong. it is much easier for a chinese

person to build a virtual friendship circle around wechat down for an american person on facebook. it is much easier for a chinese person to use the phone to order services and buy books and pay other people money, so the chinese internet has become an easier to use set of tools than the american internet. emily: what do you think of the approach the trump administration has taken towards the chinese government? kai-fu: i would be concerned a and president trump's vis immigration policies. the core competitiveness of america eyes on the brilliance of the university's and researchers and america's ability to draw the top talent to the universities here, and a certain percentage will stay, and i was a case in point. visas became

difficult, that will be a huge long-term negative differentiator for america. emily: is china leapfrogging the u.s. when it comes to artificial intelligence. ahead ofoogle is well the rest of companies, and american diversity's are ahead of chinese universities and companies come but china has three big advantages that may give it a chance to leapfrog. because ai isata about having a huge amount of data that you can train on and get better than it is about having brilliant minds. the second is a huge army of engineering grad students, engineering and math is the strongest point of chinese universities. in july 2017, the state council came out with an ai plan, and that is a set of policies that have teeth and are sent to all the provinces and cities with

lots of funding for ai companies , so with these reasons together i think chinese leapfrog is possible. i would say it is 50-50 right now whether ultimately the u.s. or china will lead the world in ai. emily: the strategies of chinese companies differ from facebook amazon when it comes to the strategy itself and implementation. kai-fu: microsoft, facebook, and tencent have chosen to build the powerful but i've re-tower kind of way, whereas alibabaamazon, baidu, are trying to take a product-driven approach. both are interesting. i also think i'll seven king up there suc world's top talent, which is not good for entrepreneurship and an

antitrust standpoint, and i think chinese companies probably the one part that sets them apart from the u.s. companies is there is not as strong a concern or regard for antitrust consequences, so you see the chinese companies really building empires, whereas the american companies having seen what microsoft went through with antitrust, what google and maybe facebook are going through, or more cautious of us thing with their core business. baidu, tencent, and alibaba become substantial players and markets were google and facebook are dominant. kai-fu: the chinese market is probably larger than the rest of the world combined. not in people or dollars come up but if you think about the number of people who can be online and immediately be paying for something, 730 million people fully connected can pay anything to anybody anytime

without commission. in chinampanies acquiring and investing in many companies in silicon valley, it even more so in southeast asia, india, islamic world, so i think the chinese-driven outside china american challenging top companies is something that will happen, probably not on a one to one basis, probably not fought on u.s. or china, because the incumbents will win, but the rest of the world it will be interesting to watch. emily: what do you make of $.10 investment in snap, buying a 12% stake? is it part of bigger ambitions? kai-fu: tencent is smart about making global investments. i think they teach a lot to the companies they invest in. and hespoken to evan really appreciates all that tencent has taught them based on

chinese user behaviors, social, and things like that, but i also think evan has taught tencent through its experiences, so tencent is this for a powerful and amazing learning machine, so these investments are teaching what they know, just like tencent and facebook were , soected by yuri milner there is learning going both ways. i don't think tencent has global domination ambitions. i think they are primarily a chinese company, but want to continue to increase their presence and learn and teach at the same time. emily: what do you think of amazon selling part of its cloud business in china? kai-fu: i know very few domestic chinese companies using amazon services. amazon services are doing well in china for chinese companies that want to go overseas hummus --that i think will restrict that want to go overseas, so i

think that will restrict the use. in china, butds just for chinese companies to place ads outside of china, so if american companies limit themselves to the outside-going part of china, that will be such a small business i don't think it is interesting. the only american company doing ok in china is apple actually. emily: apple return to growth in china, but still face cheaper smartphone competitors come and yet now they have this $1000 iphone on the market. what is apple's potential in china? will we see it right to? votto -- plateau? kai-fu: i think overall apple is gearing up for some exciting , iducts, and i think those think those may take it a step xiaomif the competitive, and others in china, so i am

bullish because i can see apple building these great leap-forward from products, but be on the phone it is tough. beyond the iphone it is tough. emily: how much is devoted to chips manufactured in china? hardware isybody's manufactured in china. that is currently china's competitiveness. some companies are beginning to come back to manufacturing in less.s. in the human-centric labor. i am on the board of foxconn. foxconn has built a number of factories here, so i think america's competitiveness will

probably come from the automation part of manufacturing. the existing type that i think china has a lead. ♪ emily: who will win on self driving cars in china? ♪

emily: who is going to win on self driving cars in china, and why? we invested in three companies in autonomous vehicles. i think they all have a good shot. nach of them has a execution-oriented approach, so with autonomous vehicles it is important to launch, collect data, and use data to make your product better. forave a lot of respect didi. they have a big incentive to make it work because they will lose more money if they don't replace the driver.

same with uber. i am actually a little bit contrarian in believing that shared-economy companies have a good shot, because they are the ones who most desperately need to get autonomous driving to work to fix their profit and loss problems. aily: you are an investor in bike sharing player. other bike sharing players have disappeared. do you see these businesses going under and investor cash disappearing? >> shared bicycle is a winner take all market. consolidation has happened. there is one player left. they can kill each other or merge. we think we have the right product, so we hopefully it will be merged. emily: are they considering a merger? kai-fu: not that i am aware of,

but on people's minds. emily: it is something you would like to see? we-fu: as investors come up would like to facilitate the fastest road to prosperity, and we can see a single platform for shared bicycle makes a lot more money because due to competition per houre paying cents for shared bicycle rides come shared bicycle is appealing to a fundamental need for people and they are probably willing to pay one dollar per hour, and that will rapidly push the company from loss to massive profitability, and that is something they will have to think about. emily: uber pulled out of china. airbnb is trying to charge in. what are the prospects of airbnb succeeding were many other u.s. companies have failed? >> i am not a fan of like

weight internet american companies succeeding in china. i am a huge fan of airbnb. but it's thin the near approach to building products -- thin veneer approach to building products does not work in china. build toyou have to block your competitors, otherwise they will eat your lunch. a chinese company building airbnb is leasing buildings, buying buildings, refurbishing the whole place systematically and cost-effectively, replenishing the refrigerators at a cost-effective basis him and the chinese people traveling are still looking for a good return on investment, lower costs, so the airbnb approach is great for chinese travelers to go abroad and foreigners to go to china, but again that is such a small market compared to chinese people consuming products and services within china. emily: so you think airbnb is

toast in china? kai-fu: not toast. they will have a decent business, like google and amazon, but it won't -- will be a small percentage. emily: talk to me about sinovation ventures, more than $1 billion under management. where do you think are the hottest places to invest your money right now? kai-fu: artificial intelligence is our big at. we are investing in a i applied ch ford tech -- finte banks, customer service, ai's use in health and medicine, autonomous vehicles. we invest in robotics, primarily industrial robotics, because i think that is where people can see making money or saving money. we are invested in new types of sensors that will ring down the

cost of autonomous vehicles and robots, so ai is probably half of our fund, but under a high there are 6-7 errors we invest in. countrieshave seen like tencent continue to rise. where do you see the valuations of chinese companies going? forfu: china's market internet companies is larger than the rest of the world, so current day ration's roughly are one to one, the u.s. slightly higher. 50%ink china should be higher than the u.s. when it is all said and done, so both valuations will grow. i think chinese will grow more in the next five years because leveraging all this online access payment to and the speed of acceleration, i think probably a reasonable equilibrium is maybe 1.5 china, 1.0 u.s., company to company. emily: really?

kai-fu: on the other hand i see a bubble as well, so i don't say everything will continue to go through the roof. muchwill surely put too money and companies that are not ai companies and getting double, triple valuation, and that has become rationalized overtime. emily: thank you so much for joining us on the show. kai-fu: thank you. ♪ retail.

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♪ kong, new00 in hong in tokyo. welcome to bloomberg markets. -- noon in tokyo. welcome to bloomberg market. crisco control, the bank of japan keeps policy on hold, voting 8-1 to stay on course. the lone dissenter wants more stimulus. targets leaders target three battles in 2018. risk, povertyial and pollution at the top of the list. a new target in china, the

nasdaq listed company is a total zero.ud, a of japan meeting keeping policy at target. let's join kathleen hays. casting: let's put this in context. none of this is surprising, but we are previewing what might happen, now we know what did happen. nothing changed about policy. exactly what we are expecting. dissented again. the boj needs to do more. let's see what they are looking how far 8499 shows you from target even the most upward sloping line is. zero point 8%, the main number half glassches, i am full on inflation, like governor corona.