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

In the previous decade, China has built a solid foundation to support its AI economy and made significant contributions to AI worldwide. Stanford University's AI Index, which evaluates AI improvements around the world throughout different metrics in research, development, and economy, ranks China among the top 3 nations for global 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, for example, China produced about one-third of both AI journal papers and AI citations worldwide in 2021. In financial investment, China accounted for almost 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 types of AI companies in China

In China, we discover that AI companies generally fall under among five main classifications:

Hyperscalers develop end-to-end AI innovation capability and work together within the community to serve both business-to-business and business-to-consumer companies. Traditional market companies serve customers straight by establishing and embracing AI in internal improvement, new-product launch, and client services. Vertical-specific AI companies develop software and services for particular domain usage cases. AI core tech providers supply access to computer vision, natural-language processing, voice acknowledgment, and artificial intelligence abilities to establish AI systems. Hardware business supply the hardware infrastructure to support AI need in computing 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 marketing research on China's AI market III, December 2020. In tech, for example, leaders Alibaba and ByteDance, both family 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 embraced in China to date have remained in consumer-facing markets, propelled by the world's largest web consumer base and the capability to engage with customers in new methods to increase consumer loyalty, earnings, and market appraisals.

So what's next for AI in China?

About the research

This research study is based on field interviews with more than 50 specialists within McKinsey and across industries, in addition to comprehensive analysis of McKinsey market assessments in Europe, the United States, Asia, and China particularly between October and November 2021. In performing our analysis, we looked beyond business 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 focused 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 stage or have fully grown market adoption, such as manufacturing-operations optimization, were not the focus for the purpose of the study.

In the coming years, our research suggests that there is incredible opportunity for AI growth in brand-new sectors in China, consisting of some where development and R&D costs have typically lagged worldwide counterparts: vehicle, transport, and logistics