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

In the past decade, China has constructed a solid structure to support its AI economy and made significant contributions to AI globally. Stanford University's AI Index, which assesses AI advancements around the world throughout various metrics in research study, development, and economy, ranks China among the leading three countries 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 study, for instance, China produced about one-third of both AI journal documents and AI citations worldwide in 2021. In economic financial investment, China accounted for nearly one-fifth of worldwide private investment funding in 2021, bring in $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 business in China

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

Hyperscalers establish end-to-end AI innovation capability and team up within the community to serve both business-to-business and business-to-consumer companies. Traditional industry business serve consumers straight by developing and embracing AI in internal transformation, new-product launch, and client service. Vertical-specific AI companies develop software and solutions for specific domain use cases. AI core tech companies offer access to computer vision, natural-language processing, voice recognition, and artificial intelligence abilities to establish AI systems. Hardware companies offer 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 represent 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 household names in China, have actually become known for their extremely tailored AI-driven customer apps. In reality, many of the AI applications that have been widely adopted in China to date have remained in consumer-facing industries, moved by the world's largest internet consumer base and the ability to engage with customers in new ways to increase client commitment, profits, and market appraisals.

So what's next for AI in China?

About the research

This research is based on field interviews with more than 50 experts within McKinsey and across industries, together 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 beyond industrial sectors, such as finance and retail, where there are already fully grown AI use 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 phases and could 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 purpose of the research study.

In the coming years, our research study shows that there is significant chance for AI development in new sectors in China, consisting of some where innovation and R&D costs have actually typically lagged international equivalents: automobile, transportation, and logistics