In the past decade, China has constructed a strong foundation to support its AI economy and made substantial contributions to AI globally. Stanford University’s AI Index, which evaluates AI advancements around the world across different metrics in research, advancement, and economy, ranks China among the leading 3 countries for international AI vibrancy.1”Global AI Vibrancy Tool: Who’s leading the worldwide 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 documents and AI citations worldwide in 2021. In financial financial investment, China accounted for nearly one-fifth of international private investment funding 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 financial investment in AI by geographical area, 2013-21.”

Five types of AI business in China

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

Hyperscalers develop end-to-end AI technology ability and team up within the ecosystem to serve both business-to-business and business-to-consumer companies. Traditional market companies serve clients straight by developing and embracing AI in internal transformation, new-product launch, and client services. Vertical-specific AI companies develop software application and solutions for particular domain usage cases. AI core tech service providers supply access to computer system vision, natural-language processing, voice acknowledgment, and artificial intelligence abilities to develop AI systems. Hardware companies 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 country’s AI market (see sidebar “5 types 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 become understood for their extremely tailored AI-driven customer apps. In truth, the majority of the AI applications that have been widely adopted in China to date have actually remained in consumer-facing industries, moved by the world’s biggest internet consumer base and the ability to engage with consumers in new ways to increase customer loyalty, revenue, 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 professionals within McKinsey and throughout industries, along with 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 commercial sectors, such as finance and retail, where there are already mature AI use cases and clear adoption. In emerging sectors with the greatest value-creation potential, we concentrated on the domains where AI applications are presently in market-entry phases and could have a disproportionate effect by 2030. Applications in these sectors that either remain in the early-exploration stage or have mature market adoption, such as manufacturing-operations optimization, were not the focus for the function of the research study.

In the coming decade, our research shows that there is tremendous opportunity for AI growth in brand-new sectors in China, including some where innovation and R&D spending have traditionally lagged global equivalents: automobile, transportation, and logistics