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

In the past years, China has constructed a solid structure to support its AI economy and made considerable contributions to AI internationally. Stanford University's AI Index, which evaluates AI advancements worldwide across different metrics in research study, advancement, and economy, ranks China amongst the top three nations for global AI vibrancy.1"Global AI Vibrancy Tool: Who's leading the worldwide AI race?" Expert System 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 papers and AI citations worldwide in 2021. In economic investment, China represented almost one-fifth of global personal investment financing in 2021, attracting $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 business normally fall into one of 5 main categories:

Hyperscalers develop end-to-end AI innovation ability and work together within the environment to serve both business-to-business and business-to-consumer companies. Traditional market business serve consumers straight by establishing and embracing AI in internal improvement, new-product launch, and customer care. Vertical-specific AI companies develop software application and services for particular domain use cases. AI core tech providers offer access to computer vision, natural-language processing, voice recognition, and artificial intelligence abilities to establish AI systems. Hardware companies supply the hardware facilities to support AI need in computing power and storage. Today, AI adoption is high in China in finance, retail, and high tech, which together for more than one-third of the country's AI market (see sidebar "5 kinds of AI companies in China").3 iResearch, iResearch serial market research study on China's AI industry III, December 2020. In tech, for example, leaders Alibaba and ByteDance, both home names in China, have actually become understood for their highly tailored AI-driven consumer apps. In truth, most of the AI applications that have been extensively adopted in China to date have remained in consumer-facing markets, propelled by the world's largest internet consumer base and the capability to engage with consumers in brand-new ways to increase customer commitment, revenue, and market appraisals.

So what's next for AI in China?

About the research study

This research study is based on field interviews with more than 50 specialists within McKinsey and throughout industries, in addition to substantial analysis of McKinsey market evaluations 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 usage cases and clear adoption. In emerging sectors with the greatest value-creation potential, we focused on the domains where AI applications are currently in market-entry stages and could have an out of proportion impact by 2030. Applications in these sectors that either remain in the early-exploration stage or have mature market adoption, such as manufacturing-operations optimization, were not the focus for the purpose of the research study.

In the coming years, our research indicates that there is significant opportunity for AI development in new sectors in China, including some where development and R&D spending have traditionally lagged international equivalents: automotive, transport, and logistics