labtech

1 The next Frontier for aI in China might Add $600 billion to Its Economy

In the past decade, China has built a strong foundation to support its AI economy and made significant contributions to AI internationally. Stanford University's AI Index, which assesses AI improvements around the world throughout numerous metrics in research, development, and economy, ranks China amongst the top three nations for worldwide AI vibrancy.1"Global AI Vibrancy Tool: Who's leading the global AI race?" Expert System Index, Stanford Institute for Human-Centered Artificial Intelligence (HAI), Stanford University, 2021 ranking. On research, for instance, China produced about one-third of both AI journal documents and AI citations worldwide in 2021. In economic financial investment, China represented nearly one-fifth of global private investment financing in 2021, drawing in $17 billion for AI start-ups.2 Daniel Zhang et al., Artificial Intelligence Index report 2022, Stanford Institute for Human-Centered Artificial Intelligence (HAI), Stanford University, March 2022, Figure 4.2.6, "Private financial investment in AI by geographic location, 2013-21."

Five types of AI companies in China

In China, we discover that AI companies typically fall under one of 5 main classifications:

Hyperscalers develop end-to-end AI technology ability and work together within the ecosystem to serve both business-to-business and business-to-consumer companies. Traditional market companies serve clients straight by establishing and embracing AI in internal transformation, new-product launch, and customer care. Vertical-specific AI business develop software application and solutions for specific domain use cases. AI core tech companies supply access to computer system vision, natural-language processing, voice acknowledgment, and artificial intelligence capabilities to develop AI systems. Hardware companies provide the hardware facilities to support AI demand in computing power and storage. Today, AI adoption is high in China in finance, retail, and high tech, which together represent more than one-third of the nation's AI market (see sidebar "5 kinds of AI business in China").3 iResearch, iResearch serial market research on China's AI industry III, December 2020. In tech, for example, leaders Alibaba and ByteDance, both family names in China, have become understood for their highly tailored AI-driven customer apps. In fact, the majority of the AI applications that have been widely embraced in China to date have remained in consumer-facing industries, propelled by the world's largest internet customer base and the capability to engage with consumers in new ways to increase consumer loyalty, revenue, and market appraisals.

So what's next for AI in China?

About the research study

This research study is based upon field interviews with more than 50 professionals within McKinsey and throughout industries, in addition to extensive analysis of McKinsey market evaluations in Europe, the United States, Asia, and China specifically between October and November 2021. In performing our analysis, we looked outside of commercial sectors, such as finance and retail, where there are currently fully grown AI use cases and clear adoption. In emerging sectors with the highest value-creation potential, we focused on the domains where AI applications are currently in market-entry stages and could have a disproportionate impact by 2030. Applications in these sectors that either remain in the early-exploration phase or have fully grown industry adoption, such as manufacturing-operations optimization, were not the focus for the function of the research study.

In the coming decade, our research shows that there is remarkable opportunity for AI development in new sectors in China, consisting of some where development and R&D spending have actually typically lagged international counterparts: automobile, transportation, and logistics