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1 The next Frontier for aI in China might 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 globally. Stanford University's AI Index, which assesses AI developments around the world across various metrics in research, development, and economy, ranks China among the leading 3 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 financial investment, China represented nearly one-fifth of worldwide personal 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 investment in AI by geographic area, 2013-21."

Five kinds of AI business in China

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

Hyperscalers develop end-to-end AI innovation ability and team up within the ecosystem to serve both business-to-business and business-to-consumer business. Traditional industry companies serve clients straight by establishing and adopting AI in internal improvement, new-product launch, and client services. Vertical-specific AI business establish software application and options for specific domain use cases. AI core tech providers offer access to computer system vision, natural-language processing, voice recognition, and artificial intelligence abilities to establish AI systems. Hardware business provide 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 account for more than one-third of the country's AI market (see sidebar "5 types of AI companies in China").3 iResearch, iResearch serial market research on China's AI industry III, December 2020. In tech, for example, leaders Alibaba and ByteDance, both household names in China, have actually become known for their highly tailored AI-driven consumer apps. In truth, the majority of the AI applications that have been widely embraced in China to date have actually remained in consumer-facing industries, moved by the world's largest internet consumer base and the ability to engage with customers in new methods to increase client loyalty, revenue, 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 experts within McKinsey and throughout industries, 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 industrial sectors, such as financing and retail, where there are already fully grown AI use cases and clear adoption. In emerging sectors with the greatest value-creation capacity, 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 phase or have fully grown industry adoption, such as manufacturing-operations optimization, were not the focus for the purpose 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, consisting of some where innovation and R&D costs have traditionally lagged global counterparts: automobile, transportation, and logistics