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

In the past years, China has actually built a solid foundation to support its AI economy and made considerable contributions to AI worldwide. Stanford University's AI Index, which evaluates AI developments worldwide throughout different metrics in research, advancement, and economy, ranks China among the top three countries for global 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 study, for example, China produced about one-third of both AI journal documents and AI citations worldwide in 2021. In economic investment, China represented 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 financial investment in AI by geographic location, 2013-21."

Five kinds of AI companies in China

In China, we find that AI business generally fall into one of five main categories:

Hyperscalers develop end-to-end AI innovation capability and work together within the community to serve both business-to-business and business-to-consumer business. Traditional market business serve customers straight by developing and embracing AI in internal transformation, new-product launch, and customer support. Vertical-specific AI business establish software application and solutions for specific domain usage cases. AI core tech service providers provide access to computer system vision, natural-language processing, voice recognition, and artificial intelligence capabilities to develop AI systems. Hardware companies offer the hardware infrastructure to support AI need in calculating 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 companies in China").3 iResearch, iResearch serial marketing research on China's AI market III, December 2020. In tech, for instance, leaders Alibaba and ByteDance, both home names in China, have become understood for their extremely tailored AI-driven consumer apps. In fact, the majority of the AI applications that have been commonly adopted in China to date have remained in consumer-facing markets, moved by the world's largest web consumer base and the ability to engage with customers in new ways to increase consumer commitment, earnings, and market appraisals.

So what's next for AI in China?

About the research

This research study is based upon field interviews with more than 50 professionals within McKinsey and across industries, along with extensive analysis of McKinsey market assessments in Europe, the United States, Asia, and China specifically between October and November 2021. In performing our analysis, we looked outside of industrial sectors, such as finance and retail, where there are already mature AI usage cases and clear adoption. In emerging sectors with the highest value-creation capacity, we concentrated on the domains where AI applications are presently in market-entry stages and might have an out of proportion effect by 2030. Applications in these sectors that either remain in the early-exploration phase or have fully grown market adoption, such as manufacturing-operations optimization, were not the focus for the function of the study.

In the coming years, our research study shows that there is tremendous chance for AI development in new sectors in China, including some where innovation and R&D costs have typically lagged global equivalents: vehicle, transportation, and logistics