In the previous years, China has actually developed a solid foundation to support its AI economy and made considerable contributions to AI globally. Stanford University's AI Index, which evaluates AI advancements around the world across different metrics in research study, advancement, and economy, ranks China among the leading three nations for international AI vibrancy.1"Global AI Vibrancy Tool: Who's leading the international AI race?" Artificial Intelligence 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 papers and AI citations worldwide in 2021. In economic investment, China accounted for nearly one-fifth of worldwide private investment financing 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 types of AI companies in China

In China, we find that AI business typically fall into one of 5 main categories:

Hyperscalers establish end-to-end AI innovation ability and work together within the environment to serve both business-to-business and business-to-consumer business. Traditional industry companies serve consumers straight by establishing and adopting AI in internal improvement, new-product launch, and consumer services. Vertical-specific AI business establish software and options for particular domain usage cases. AI core tech providers offer access to computer system vision, natural-language processing, voice acknowledgment, and artificial intelligence capabilities to develop AI systems. Hardware companies provide the hardware infrastructure to support AI demand in computing 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 business in China").3 iResearch, iResearch serial market 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 understood for their extremely tailored AI-driven customer apps. In truth, many of the AI applications that have been widely adopted in China to date have remained in consumer-facing industries, moved by the world's largest internet customer base and the ability to engage with customers in new methods to increase customer commitment, profits, 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 professionals within McKinsey and across industries, along with substantial analysis of McKinsey market evaluations in Europe, the United States, Asia, and China specifically in between October and November 2021. In performing our analysis, we looked beyond business sectors, such as financing and retail, where there are currently fully grown AI usage cases and clear adoption. In emerging sectors with the highest value-creation potential, we focused on the domains where AI applications are presently in market-entry stages and could have a disproportionate impact 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 purpose of the research study.

In the coming years, our research suggests that there is significant opportunity for AI growth in new sectors in China, consisting of some where innovation and R&D spending have typically lagged international counterparts: automobile, transport, and logistics