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In the previous years, China has actually developed a strong foundation to support its AI and made substantial contributions to AI internationally. Stanford University's AI Index, which assesses AI advancements around the world across different metrics in research, advancement, and economy, ranks China among the leading three countries 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 example, China produced about one-third of both AI journal documents and AI citations worldwide in 2021. In financial investment, China accounted for nearly one-fifth of global private investment financing 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 geographical area, 2013-21."

Five types of AI business in China

In China, we find that AI business usually fall into one of 5 main classifications:

Hyperscalers develop end-to-end AI technology capability and work together within the community to serve both business-to-business and business-to-consumer business. Traditional market companies serve customers straight by developing and embracing AI in internal transformation, new-product launch, and customer care. Vertical-specific AI companies develop software application and services for specific domain usage cases. AI core tech companies provide access to computer system vision, natural-language processing, voice recognition, and artificial intelligence capabilities to develop AI systems. Hardware business offer the hardware infrastructure 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 business in China").3 iResearch, iResearch serial marketing research on China's AI industry III, December 2020. In tech, for example, leaders Alibaba and ByteDance, both family names in China, have become known for their highly tailored AI-driven customer apps. In truth, the majority of the AI applications that have been commonly embraced in China to date have remained in consumer-facing markets, propelled by the world's biggest internet customer base and the capability to engage with customers in brand-new methods to increase customer commitment, earnings, and market appraisals.

So what's next for AI in China?

About the research

This research is based on field interviews with more than 50 experts within McKinsey and across industries, along with comprehensive analysis of McKinsey market assessments in Europe, the United States, Asia, and China specifically in between October and November 2021. In performing our analysis, we looked beyond industrial 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 capacity, we focused on the domains where AI applications are currently in market-entry phases and might have an out of proportion 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 research study.

In the coming years, our research study shows that there is significant opportunity for AI growth in brand-new sectors in China, consisting of some where innovation and R&D costs have traditionally lagged international equivalents: automobile, transportation, and logistics