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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 built a strong structure to support its AI economy and made significant contributions to AI internationally. Stanford University's AI Index, which evaluates AI improvements worldwide throughout different metrics in research, development, and economy, ranks China among the top three countries for international AI vibrancy.1"Global AI Vibrancy Tool: Who's leading the international 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 papers and AI citations worldwide in 2021. In economic investment, China represented almost one-fifth of worldwide personal financial investment financing 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 find that AI companies typically fall into one of 5 main classifications:

Hyperscalers develop end-to-end AI innovation ability and team up within the environment to serve both business-to-business and business-to-consumer companies. Traditional industry business serve clients straight by developing and embracing AI in internal transformation, new-product launch, and client service. Vertical-specific AI companies establish software and options for specific domain use cases. AI core tech service providers provide access to computer vision, natural-language processing, voice acknowledgment, and artificial intelligence capabilities to develop AI systems. Hardware business supply the hardware facilities to support AI need in calculating power and storage. Today, AI adoption is high in China in financing, retail, and high tech, which together represent more than one-third of the nation's AI market (see sidebar "5 types of AI business in China").3 iResearch, iResearch serial market research study on China's AI market III, December 2020. In tech, for example, leaders Alibaba and ByteDance, both home names in China, have ended up being understood for their highly tailored AI-driven consumer apps. In fact, the majority of the AI applications that have been commonly embraced in China to date have remained in consumer-facing industries, propelled by the world's largest web consumer base and the ability to engage with consumers in brand-new ways to increase consumer loyalty, profits, 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 throughout industries, in addition to extensive 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 finance and retail, where there are already mature 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 stages and might have a disproportionate impact by 2030. Applications in these sectors that either remain in the early-exploration phase or have mature market adoption, such as manufacturing-operations optimization, were not the focus for the function of the research study.

In the coming years, our research suggests that there is significant chance for AI development in new sectors in China, including some where development and R&D costs have traditionally lagged global counterparts: automotive, transportation, and logistics