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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 developed a solid foundation to support its AI economy and made substantial contributions to AI globally. Stanford University's AI Index, which assesses AI improvements around the world throughout different metrics in research, advancement, and economy, ranks China amongst the top 3 countries for international 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 economic investment, China accounted for nearly one-fifth of global private 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 types of AI companies in China

In China, we find that AI business typically fall into one of 5 main classifications:

Hyperscalers establish end-to-end AI innovation capability and work together within the environment to serve both business-to-business and business-to-consumer business. Traditional market business serve clients straight by establishing and adopting AI in internal improvement, new-product launch, and customer care. Vertical-specific AI business establish software application and services for particular domain use cases. AI core tech providers offer access to computer vision, natural-language processing, voice acknowledgment, and artificial intelligence abilities to establish 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 financing, retail, and high tech, which together account for more than one-third of the country's AI market (see sidebar "5 types of AI business 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 actually become understood for their highly tailored AI-driven consumer apps. In fact, the majority of the AI applications that have been commonly adopted in China to date have actually remained in consumer-facing markets, moved by the world's biggest web customer base and the ability to engage with customers in brand-new methods to increase consumer commitment, income, and market appraisals.

So what's next for AI in China?

About the research study

This research is based on field interviews with more than 50 specialists within McKinsey and across markets, in addition to comprehensive analysis of McKinsey market evaluations in Europe, the United States, Asia, and China particularly between October and November 2021. In performing our analysis, we looked beyond commercial sectors, such as financing and retail, where there are currently fully grown AI usage 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 an out of proportion impact by 2030. Applications in these sectors that either remain in the early-exploration stage or have mature industry adoption, such as manufacturing-operations optimization, were not the focus for the purpose of the research study.

In the coming decade, our research study suggests that there is significant opportunity for AI growth in new sectors in China, consisting of some where innovation and R&D costs have generally lagged global counterparts: vehicle, transport, and logistics