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

In the previous decade, China has built a solid structure to support its AI economy and made substantial contributions to AI globally. Stanford University's AI Index, which assesses AI improvements worldwide across different metrics in research study, advancement, and economy, genbecle.com ranks China among the top 3 nations for worldwide AI vibrancy.1"Global AI Vibrancy Tool: Who's leading the worldwide AI race?" Artificial Intelligence Index, Stanford Institute for Human-Centered Artificial Intelligence (HAI), Stanford University, 2021 ranking. On research, for example, China produced about one-third of both AI journal documents and AI citations worldwide in 2021. In financial financial investment, China represented almost one-fifth of international private financial investment financing in 2021, bring 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 investment in AI by geographic location, 2013-21."

Five kinds of AI business in China

In China, we find that AI companies usually fall into one of 5 main classifications:

Hyperscalers establish end-to-end AI technology capability and collaborate within the community to serve both business-to-business and business-to-consumer companies. Traditional industry companies serve consumers straight by developing and adopting AI in internal transformation, new-product launch, and customer services. Vertical-specific AI business develop software and options for specific domain use cases. AI core tech companies offer access to computer vision, natural-language processing, voice recognition, and artificial intelligence capabilities to develop AI systems. Hardware companies supply the hardware infrastructure to support AI need in calculating power and storage. Today, AI adoption is high in China in financing, retail, and high tech, which together represent more than one-third of the nation's AI market (see sidebar "5 kinds of AI companies in China").3 iResearch, iResearch serial marketing research on China's AI market III, December 2020. In tech, for example, leaders Alibaba and ByteDance, both family names in China, have actually become understood for their highly tailored AI-driven customer apps. In reality, the majority of the AI applications that have actually been extensively adopted in China to date have remained in consumer-facing industries, moved by the world's biggest internet consumer base and the capability to engage with customers in brand-new ways to increase consumer commitment, profits, and market appraisals.

So what's next for AI in China?

About the research

This research study is based on field interviews with more than 50 specialists within McKinsey and across markets, together with extensive analysis of McKinsey market assessments in Europe, the United States, Asia, and China particularly in between October and November 2021. In performing our analysis, we looked outside of business sectors, such as financing and retail, where there are currently fully grown AI use cases and clear adoption. In emerging sectors with the greatest value-creation capacity, we focused on the domains where AI applications are currently in market-entry stages and could have an out of proportion effect by 2030. Applications in these sectors that either remain in the early-exploration phase or have mature market adoption, such as manufacturing-operations optimization, were not the focus for the purpose of the research study.

In the coming decade, our research indicates that there is incredible opportunity for AI development in new sectors in China, including some where innovation and R&D spending have actually generally lagged international counterparts: automotive, transport, and logistics