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    China Merchants Group’s securities arm pulls out of tender offer for Microsoft AI services amid rising sensitivity

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    By Ben Jiang in Beijing

    The securities arm of state-owned conglomerate China Merchants Group (CMG) has scrapped its participation in a tender for artificial intelligence (AI) services provided by US tech giant Microsoft, according to a Monday post on the group’s website, highlighting the growing sensitivity for Chinese firms of sharing domestic data with foreign firms.

    Shenzhen-based Merchants Securities, the securities arm of CMG, said in the notice that it had scrapped an offer to procure Microsoft’s large language model (LLM) services, citing a “change of procurement needs”, without elaborating on the changes or if it was seeking to buy the services from Microsoft’s US or China entity.

    Merchants Securities did not immediately respond to a request for comment and calls to the company went unanswered as of late Tuesday.

    The move comes amid increased rivalry between the US and China over the development of generative-AI technology and Beijing’s tighter grip on sensitive information, such as personal financial accounts and industrial intelligence. Chinese authorities have recently stepped up their scrutiny of the access foreign firms have to potentially sensitive information, a development that has disrupted the operations of some.

    Beijing has raided the offices of several foreign consultancies this year, including Capvision and Mintz, and questioned staff from others including the Boston Consulting Group, over concerns that they have hired industry experts who may have shared sensitive information, including state secrets and industrial intelligence, according to state broadcaster CCTV and various local media reports.

    Beijing has also restricted access to certain business and economic data provided by domestic financial data provider Wind, for users from regions outside mainland China, according to a recent report by Reuters.

    The LLM services being offered by Microsoft involve AI algorithms that use deep-learning techniques and huge pre-training data sets to understand, generate and predict new content – such as ChatGPT which was developed by Microsoft-backed OpenAI.

    Microsoft has started to integrate ChatGPT into a wide range of its service offerings, from search engine Bing to its Office software suite. Both ChatGPT and Bing with the integrated AI are not publicly available in China.

    Study shows ChatGPT has potential to do data analysis at fraction of human cost29 May 2023

    Meanwhile, several leading tech companies, including Apple and Samsung Electronics, have also stopped their employees from using the AI-powered chatbot for work purposes. California-based Apple restricted its employees from using ChatGPT due to the risk of data leaks whereas South Korea’s Samsung banned employee use of ChatGPT after an incident where staff inadvertently shared sensitive code information with the chatbot.

    Breaching data privacy is a key challenge for increased adoption of ChatGPT-style services, according to analysts.

    “When using such products, we are helping firms to train their models. The more data you put in, the more effective the models will be,” Zhong Zhenshan, a vice-president at market research firm IDC China, told an audience at an event the firm organised in Beijing in early May. “And to some extent, you are also sharing your information with other users of the service.”