Politics

5 takeaways from the EU's new AI and data regulation plans

Europe wants in on AI — at least the good parts.

European Commission President Ursula Von der Leyen

European Commission President President Ursula von der Leyen wants Europe to have the capability "to make its own choices, based on its own values, respecting its own rules."

Photo: Thierry Monasse/Getty Images

The European Union has new ideas about how it could try to keep up with America and China on AI — and it could shape global thinking on how the technology is regulated in the process.

The European Commission published a suite of proposals for Europe's digital future on Wednesday, including a new data strategy and a white paper on artificial intelligence. They describe, among other things, proposed regulations of cutting-edge uses of AI, and the building out of a unified European data market.

The overall theme, as laid out in an op-ed by European Commission President President Ursula von der Leyen, is to give Europe the capability "to make its own choices, based on its own values, respecting its own rules" on AI — part of what she describes as "tech sovereignty."

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But Europe could in the process make a global impact.

"The general ambition is that the EU takes the lead on regulation of AI — exactly as it did in the field of personal data protection," said Théodore Christakis, a law professor at Université Grenoble-Alpes who focuses on AI. "Regulation of artificial intelligence is seen as a kind of 'the next GDPR,'" he added.

Von der Leyen made the ambitious promise to initiate AI legislation within 100 days of taking office. That's not exactly what we have today. Instead, the AI white paper is a set of proposed approaches that could change substantially before becoming law.

"It's not legally binding," Christakis said. "It is presented as a kind of roadmap for rules that should be adopted in the coming years." The first actual regulation, he said, could potentially be put in place near the by the end of 2020 at the earliest.

But what exactly do all these proposals for what Europe should do actually mean? There's a lot to dig through, so here are five of the most important takeaways.

Europe knows AI is the future, and wants in. Somehow.

The EU sees a huge opportunity in AI: to benefit people's lives, through improving efficiency in areas like health care, agriculture, and technology, as well as it being a driver of economic growth. But it knows that tech giants, mostly American, are already ahead in the race, and they need to find ways to drive investment to catch up.

The white paper suggests a way in: focusing on industrial, business, and public sector data that will end up being stored and processed on devices at the edge of the network, rather than in the cloud.

"This opens up new opportunities for Europe, which has a strong position in digitized industry and business-to-business applications, but a relatively weak position in consumer platforms," the AI white paper notes.

That may not be enough.

"The problem is, not all, but much of data innovation, is driven by personal data — and most data on some level is personal data," said Sue Aaronson, a professor at The George Washington University and director of its Data Governance Hub. So it's unclear how the EU will navigate this terrain at the same time as complying with its own strict General Data Protection Regulation.

Europe also wants to protect itself from harmful AI.

The strongest regulatory idea in the proposal is the creation of a mandatory testing system for AI applications that the EU considers high risk, especially those with significant human rights implications, such as government use of facial recognition or predictive policing algorithms.

"Basically the Commission is inspired here by conformity assessment mechanisms that already exist for a large number of products being placed on the EU's internal market" like cars and chemicals, Christakis said.

The proposal lays out two key criteria for what it considers a "high risk" use of AI. First, is it being deployed in a sector where there could be significant risks, like health, energy or transportation? Second, is it a system that could actually affect safety? Meanwhile, it suggests a more light touch for non-"high-risk" data uses, to avoid hindering innovation.

Early indications suggest that the industry welcomes this idea. "By focusing on precision regulation — applying different rules for different levels of risk — Europe can ensure its businesses and consumers have trust in technology," Christopher Padilla, vice president for government and regulatory affairs at IBM, said in a statement.

That facial recognition ban? It's scrapped.

A draft of the AI paper that leaked in January suggested a temporary multiyear ban on facial recognition technologies in public places, to give governments time to figure out how to use it safely and ethically.

That section didn't end up in the final documents. Instead, the version released Wednesday says that the "Commission will launch a broad European debate on the specific circumstances, if any, which might justify" the deployment of facial recognition technology for things like identifying people in public places.

That may disappoint privacy and civil liberties advocates who hoped to see a more aggressive stance. But others, including Christakis, see it as a sign that the EU is planning to take regulation in this area seriously, rather than scrambling to roll out policies to meet political deadlines.

Europe hopes data can fuel its own big tech competitors.

Changing gears to consider the data strategy, the Commission isn't coy about the status quo, acknowledging that just "a small number of big tech firms hold a large part of the world's data" right now. And that's a problem for Europe, it says, because it "could reduce the incentives for data-driven businesses to emerge, grow and innovate in the EU today."

But the strategy argues that "the winners of today will not necessarily be the winners of tomorrow" and lays out plans to try to increase local investment and foster the development of local competitors.

That includes incentivizing data sharing between European businesses with an emphasis on the industrial and business data that doesn't run afoul of the EU's strong privacy protections. But chief among those plans is the creation of "a single European data space — a genuine single market for data" that is open to data from anywhere, but governed by "European rules and values" including strong personal and consumer data protections.

Promoting sharing of this data within a structured marketplace may also promote transparency that could help Europe more effectively regulate data. Often, governments and researchers "just don't know what information [tech] firms have — they don't share with us, which makes it really hard to regulate," Aaronson said.

None of this is certain — but it could affect global policy all the same.

It's worth remembering that this is all still very much up in the air. The AI white paper is open for comment until May 19, and the Commision is also accepting feedback on the data strategy. Stakeholders — including the big tech firms that no doubt have strong opinions about the proposals — will waste little time in weighing in.

"In reality, lobbying has already started," Christakis said.

For tech leaders, especially those at big tech firms who have pushed their vision of the future to get ahead of AI regulation, this could represent a crucial moment. Currently there is a dearth of movement on these issues in the U.S., and Europe has a history of taking a lead in regulating technology — most recently with GDPR.

"The U.S. is not regulating effectively because we don't want to hamper" domestic tech giants, Aaronson said. But Europe seems ready to dive in, she added — and that could mean the rest of the world soon follows.

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

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