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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 built a strong foundation to support its AI economy and made significant contributions to AI internationally. Stanford University's AI Index, which assesses AI advancements worldwide across different metrics in research, development, and economy, ranks China amongst the top 3 nations 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, 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 private financial 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 geographical location, 2013-21."

Five kinds of AI companies in China

In China, we discover that AI business usually fall into one of 5 main classifications:

Hyperscalers develop end-to-end AI innovation ability and collaborate within the ecosystem to serve both business-to-business and business-to-consumer business. Traditional market companies serve consumers straight by developing and embracing AI in internal change, new-product launch, and client service. Vertical-specific AI companies develop software and solutions for specific domain usage cases. AI core tech companies provide access to computer vision, natural-language processing, voice recognition, and artificial intelligence abilities to develop AI systems. Hardware business 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 represent more than one-third of the nation's AI market (see sidebar "5 kinds of AI business in China").3 iResearch, iResearch serial marketing research on China's AI industry III, December 2020. In tech, for example, leaders Alibaba and ByteDance, both home names in China, have become understood for their highly tailored AI-driven customer apps. In truth, most of the AI applications that have been widely embraced in China to date have remained in consumer-facing industries, propelled by the world's biggest web consumer base and the ability to engage with customers in brand-new ways to increase customer commitment, income, 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 experts within McKinsey and across markets, along with comprehensive 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 commercial sectors, such as finance and retail, where there are already mature AI usage cases and clear adoption. In emerging sectors with the greatest value-creation capacity, we concentrated on the domains where AI applications are currently 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 mature industry adoption, such as manufacturing-operations optimization, were not the focus for the function of the research study.

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