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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 actually constructed a strong foundation to support its AI economy and made substantial contributions to AI internationally. Stanford University's AI Index, which evaluates AI improvements around the world across different metrics in research, development, and economy, ranks China amongst the leading 3 nations for international AI vibrancy.1"Global AI Vibrancy Tool: Who's leading the international 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 economic financial investment, China accounted for almost one-fifth of international personal financial investment funding 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 investment in AI by geographical area, 2013-21."

Five types of AI companies in China

In China, we find that AI companies usually fall under one of five main classifications:

Hyperscalers establish end-to-end AI technology capability and collaborate within the environment to serve both business-to-business and business-to-consumer business. Traditional industry business serve customers straight by developing and adopting AI in internal change, new-product launch, and customer services. Vertical-specific AI business develop software and services for specific domain use cases. AI core tech suppliers offer access to computer system vision, natural-language processing, voice recognition, and artificial intelligence capabilities to develop AI systems. Hardware business supply 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 account for 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 market III, December 2020. In tech, for instance, leaders Alibaba and ByteDance, both household names in China, have become understood for their highly tailored AI-driven consumer apps. In fact, most of the AI applications that have been widely adopted in China to date have actually remained in consumer-facing industries, moved by the world's largest web customer base and the ability to engage with customers in brand-new ways to increase consumer loyalty, income, 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 industries, together with extensive analysis of McKinsey market assessments in Europe, the United States, Asia, and China specifically in between October and November 2021. In performing our analysis, we looked outside of industrial sectors, such as finance and retail, where there are currently mature AI usage cases and clear adoption. In emerging sectors with the greatest value-creation capacity, we focused on the domains where AI applications are presently in market-entry phases and might have a disproportionate effect by 2030. Applications in these sectors that either remain in the early-exploration stage or have fully grown industry adoption, such as manufacturing-operations optimization, were not the focus for the purpose of the study.

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