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

In the previous years, China has constructed a strong foundation to support its AI economy and made considerable contributions to AI worldwide. Stanford University's AI Index, which assesses AI improvements around the world across different metrics in research, development, and economy, ranks China amongst the top 3 nations for international 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 instance, China produced about one-third of both AI journal papers and AI citations worldwide in 2021. In economic financial investment, China represented nearly one-fifth of international personal investment financing in 2021, drawing 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 investment in AI by geographical location, 2013-21."

Five types of AI companies in China

In China, we find that AI companies normally fall into one of 5 main classifications:

Hyperscalers establish end-to-end AI innovation capability 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 transformation, new-product launch, and client service. Vertical-specific AI companies establish software and services for specific domain use cases. AI core tech companies provide access to computer vision, natural-language processing, voice acknowledgment, and artificial intelligence abilities to establish AI systems. Hardware companies provide the hardware facilities to support AI need in calculating 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 types of AI companies in China").3 iResearch, iResearch serial market research study on China's AI industry III, December 2020. In tech, for example, leaders Alibaba and ByteDance, both home names in China, have actually become known for their extremely tailored AI-driven consumer apps. In truth, the majority of the AI applications that have been extensively embraced in China to date have remained in consumer-facing industries, moved by the world's biggest web customer base and the capability to engage with consumers in new ways to increase client loyalty, earnings, and market appraisals.

So what's next for AI in China?

About the research

This research is based upon field interviews with more than 50 experts within McKinsey and across markets, 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 business sectors, such as financing and retail, where there are already mature AI use cases and clear adoption. In emerging sectors with the highest value-creation potential, we concentrated on the domains where AI applications are presently in market-entry phases and might have an out of proportion effect by 2030. Applications in these sectors that either remain in the early-exploration stage or have fully grown market adoption, such as manufacturing-operations optimization, were not the focus for the purpose of the research study.

In the coming years, our research indicates that there is remarkable chance for AI development in new sectors in China, including some where innovation and R&D spending have generally lagged global counterparts: automotive, transport, and logistics