In the past decade, China has actually developed a strong foundation to support its AI economy and made considerable contributions to AI internationally. Stanford University’s AI Index, which evaluates AI developments around the world across different metrics in research study, advancement, and economy, ranks China among the leading 3 nations for international AI vibrancy.1”Global AI Vibrancy Tool: Who’s leading the worldwide AI race?” Artificial Intelligence 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 economic investment, China represented almost one-fifth of international private investment funding in 2021, attracting $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 area, 2013-21.”

Five kinds of AI companies in China

In China, we find that AI business generally fall into one of five main categories:

Hyperscalers establish end-to-end AI technology capability and team up within the ecosystem to serve both business-to-business and business-to-consumer companies. Traditional industry companies serve consumers straight by developing and embracing AI in internal change, new-product launch, and client service. Vertical-specific AI business develop software and solutions for specific domain usage cases. AI core tech companies provide access to computer vision, natural-language processing, voice recognition, and artificial intelligence abilities to develop AI systems. Hardware business supply the hardware infrastructure to support AI demand in calculating power and storage. Today, AI adoption is high in China in finance, retail, and high tech, which together account for more than one-third of the nation’s AI market (see sidebar “5 kinds of AI companies 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 household names in China, have actually become known for their highly tailored AI-driven consumer apps. In truth, 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 internet consumer base and the ability to engage with customers in brand-new ways to increase customer loyalty, revenue, 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 experts within McKinsey and across industries, in addition to extensive analysis of McKinsey market assessments in Europe, the United States, Asia, and China particularly in between October and November 2021. In performing our analysis, we looked outside of business sectors, such as financing and retail, where there are currently fully grown AI usage cases and clear adoption. In emerging sectors with the greatest value-creation capacity, we concentrated on the domains where AI applications are currently in market-entry stages and could have a disproportionate 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 decade, our research indicates that there is significant opportunity for AI development in brand-new sectors in China, consisting of some where development and R&D spending have generally lagged global counterparts: automobile, transportation, and logistics