- 1 Definition / Scope
- 2 Market Overview
- 3 Key Metrics
- 4 Market Risks
- 5 Market Drivers
- 6 Market Restraints
- 7 Industry Challenges
- 8 Regulatory Trends
- 9 Other Key Market Trends
- 10 Market Size and Forecast
- 11 Market Outlook
- 12 Competitive Landscape
- 13 Competitive Factors
- 14 Key Market Players
- 15 Strategic Conclusion
- 16 References
- 17 Appendix
Definition / Scope
- AI technology is not any general technology offered in form of product or solution, it is a technology which enables existing processes and services to make them smarter, convenient, accurate and useful. The four major waves caused by the AI upon which companies are building their business models and use cases are as follows:
- Internet AI: This wave of AI commenced around 2010 when google started to adopt deep learning throughout its business. Internet websites and applications are source of enormous data, suppose we click to buy on e-commerce website, this allows internet giants such as Google, Facebook, Amazon and Baidu among others to receive large volumes of internet resulting data sets which they then utilize to derive income from. In China, large internet customer base will lead to massive data sets and with funding available for determined companies, China is set to lead in areas of Internet AI. For instance, Alibaba is already competing with Amazon, Tencent will probably lead Facebook and Baidu is known as Google of China. With such competence and positioning China has good scope to develop Internet AI.
- Business AI: Some businesses that have large volumes of data available can apply AI to fundamental or new data to improve business processes and aid in decision making. For example, a company called 4th Paradigm in China are applying AI to financial data to predict movement of stocks, commodities, client asset allocation among others. The Business AI wave begun in 2013 when many AI companies catering in business area commenced.
- Perception AI: It involved digitalization of physical world via sensors, smart devices, collecting new data which may be unavailable previously and using it to form new applications. For instance, China’s Face++ collects huge amounts of visual data that includes people’s faces. The application will require internet-connected sensors, new multimedia content and new user interfaces among others. The wave of perception AI begun around 2015 and China is set to become leader in this segment because of high usage of such applications as Chinese citizens are less concerned about security in public places which is unlocking doors to huge amounts of data. For instance, video cameras in shopping malls recognizing faces and sending personalized offers to targeted individuals.
- Autonomous AI: All of the three waves mentioned previously are largely software driven whereas autonomous AI is used in movement of physical products. For instance embedding AI into self-driving cars, robots, connected things etc. The autonomous AI wave came on rise as level-3 driverless vehicles and industrial robots started being used often. China is still 2 years behind US in this area, however, Chinese companies are trying to excel in this area by experimenting for which they are receiving government support both in terms of finding and policy.
- 2018 is the year for China’s real competitive position in AI in global front. The success of China’s AI development in future will be determined by number of AI deployment by tech giants, amount of governmental involvement and interest in technology and US-China“AI-race”.
- In China, the efforts to progress the AI (Artificial Intelligence) technology began much later than that across US and Europe. Some of the early developments in the AI in China considered logic reasoning, search, knowledge engineering and automated theorem proving. Two agencies namely, National Natural Science Foundation of China (NSFC) and the 863 Program (State High-Tech Development Plan) together support the basic R&D related to AI in China. The areas in which these two agencies conduct research include, hardware & software intelligence, human computer interaction (HCI), intelligent application systems, genetic algorithms, machine learning, computer vision and robotics.
- The AI development took off in China mostly during the 1990’s where Xuan Wang, a pioneer in applying AI to Chinese character printing and layout processing founded one of the largest computer companies in the country. Three AI related companies were established during the same period, namely, iFlyTek (Chinese voice recognition), Hanvon (handwriting recognition) and TRS (Chinese full-text retrieval system).
- China is becoming one of the strongest and dominating countries in the area of digital economy. The country not only has largest internet penetration in the world, it is also leader across semiconductor products, robotics, mobile payments and IoT technology. Now, China is set to become the leader in territory of AI for which it is leading innovation in AI and AI supportive technologies Experts believe China has the potential to overtake US in about next 10 years and become global leader in AI technology. China has already exceeded US in number of AI publications and patent filled.
- As of 2018, China has 3341 number of AI related startups and companies next to US which has about 4672 companies in AI sphere.
- China has emerged out of the “copycat problem” and is leading innovation in the field of AI and other technologies. In terms of patent applications, China leads ahead of the US where it has over 1 million patent applications while US has close to 589,410. China is also awarded 1288999 STEM degrees in 2018 which is double of that in the US. China is surely leveraging its population and entrepreneurship culture to innovate in advanced technologies such as AI. In addition, China has leapfrogged in digital payment technology from cash to online payments gradually which has also led consumers to adopt AI easily than that in other countries.
- China is investing AI across multiple industries i.e. across 18 sectors where 5 major sectors in which AI is being deployed are transportation, corporate service, finance, real estate and advertising and marketing.
|Base Year||2018||Researched through internet|
- China is at risk of losing its competitive position on the global front of AI and also to the US, if it fails to invest more in basic research. China lacks the basic academic research that could lead to next technology breakthrough and in such case China could find itself cut off from the latest developments in the technology. AI is the key to unlock the future economic and military gains and in such case, China will require to ramp up its efforts in laboratories, universities and also AI skills. Firstly, China lags in the global talent needed to foster AI R&D activities. China has fewer than 30 universities equipped with AI labs. In addition, 40% of the data scientists in China have less than 5 years of work experience while in the US the number of data experts are higher and they are more experienced. As AI sector itself is still in an infant stage, progress in deep learning is required where robust research must be conducted. Thus, China will stay behind in competition if it is unable to nurture fundamental research to cause a breakthrough in AI.
- Technical giants investing in AI research: Along with government supported funding, the private players in the tech industry in China are also becoming much enthusiastic in AI exploration. Some of the tech giants such as Baidu, Alibaba, Tencent and Huawei are aggressively investing in AI related R&D. The companies have their own personal dedicated labs run by world renowned AI scientists such as Andrew Ng. These companies are running such operation not only within Mainland China but also across US and European regions. The AI research conducted in those labs are mostly business oriented and practical. These AI systems are helping companies to augment their online ads, payments, social networking, and customer engagement and also helping drive other technologies such as smart cities, healthcare and automated driving technologies. For instance, Alibaba’s ET Brain project uses AI to reduce traffic jams. With the project, company is already successfully in reducing traffic jams by upto 15.3% in areas such as Hangzhou. Another company, Baidu has launched DuerOS which is a system that equips AI functionalities including voice, natural language processing (NPL), image recognition into devices. With such initiatives from tech giants, foreign companies such as Microsoft, IBM and Intel have also build their research labs in China which in turn is fueling China’s AI industry with high-quality and effective research and talented technical managers. This technology transfer could add more value to AI industry of China in near future.
- Explosion of startups founded by professors: The AI boom in China is result of smaller AI focused companies that are actually venturing into niche segments. These startup companies are founded by researchers from academic institutions and universities. AI companies in smaller segments such as Cambricon (AI chips), iFlytech (voice), SenseTime and MegaView (computer vision) and UBTECH (robotics). For instance, Cambricon was founded by Tianshi Chen and Yunji Chen who are pioneers of AI processor architecture and SenseTime was founded by Xiaoou Tang, a professor at Chinese Univesrity of Hongkong. At present SenseTime is the most innovative AI startup in the world with net worth of around $4.5 billion. These highly influential researchers are not only leading high quality research in AI but also driving business model cases out of research across other industry verticals.
- Talent pool: China faces serious problem of AI talent shortage because of aggressive competition between domestic and international companies to grab market share or sustain within the country’s AI landscape. The shortage of talent is detrimental to China especially in the case where it aims to become an AI superpower in the globe. In the US, the size of STEM graduates is over 78,000 researchers whereas in China, the talent pool is limited to 39,000 researchers only which is half the size of the US pool. The universities in the US are prominent in AI research which gives them opportunities to handle multiple full cycles of projects, also 50% of the AI researchers in the US have more than 10 years of exposure in the field whereas, in China only 25% of the researchers are experts in the field.
- Negligible data privacy regulations: Companies, government departments and general citizens in China are actively voicing out about the need of greater privacy protections and exerting pressure upon government to eradicate data liberalization policies which are designed to benefit AI companies. For the same in January 2018, the government released a new national standard on protection of personal information that contains more comprehensive and onerous requirements that even the EU’s GDPR is unable to address. The government has introduced the new standard to ensure that the valuable data remains under the control of Chinese tech companies. The standard is further being pushed upon Ai-related industries such as cloud, industrial software, big data that differ from international standards. This move is surely going to obstruct the foreign AI companies in the domestic market and favor the Chinese companies’ more.
- Local and International market competition: China’s large population facilitates the development of AI use cases in the country. As the varied population have varied demands which can be tested and launched in short cycles thus making the time to value relatively short. However, the other part of the story is aggressive competition among domestic and international companies that is leading to excess proliferation of same products/solutions in the market. The AI market competition is ruthless in China as the market is too crowded. China is retaining its position in the competition by withholding its big data from companies outside the nation while increasingly investing in AI technologies in the US but the increasing market competition within the country boarders is a huge problem for companies investing domestically.
- Irregular distribution of funds across productive sectors: In comparison to other nations, Chinese government is supporting the innovation of AI but most of the funding is being allocated in non-productive sectors which is raising concerns for companies operating in productive sectors. In addition, AI investments are not allocated in productive sectors such as healthcare. The healthcare systems are particularly overwhelmed due to the China’s aging population and in order to make system more efficient there is need of more research and investment in AI in healthcare. In long term, if the government is unable to invest more in healthcare there will be number of problems for the economy.
Chinese AI startups have also raised more total VC funding in comparison to companies in the US in 2018. There are number of reasons that has led China to become well positioned in the AI ecosystem which are as follows:
- The government of China has great ambition to become global leader in AI. To achieve the goal, Chinese government recently introduced range of policies to support the country’s development and adoption in AI. Two of the most important policies are: “Next-generation AI Development Plan” which has laid out China’s roadmap to achieve global AI leadership by 2030 and “AI Three-Year Action Plan 2018-2020” that most importantly summaries China’s 2020 AI development goals. Both policies have contributed significantly in innovating AI products/solutions and commercializing them. Along with policies, the government has also funded science hubs, development zones, incubators across several locations in the country and is providing financial backing as well as connecting such companies to potential partners/investors to grow the AI scene in the country.
- China has billions of population and realizing that data is oil for the AI technology, the government is supporting the companies by introducing friendly policies surrounding data & analytics. This in turn is providing unlimited source of data for AI algorithms which is improving scope of AI technology in China. In addition, the aforementioned policies introduced by the government has also enabled different public departments of the nation to adopt AI such as applications across traffic management, people tracking, public security thereby accelerating development of AI across other spheres such as social, education and welfare among others.
Other Key Market Trends
- Developing AI chips: Some of the companies in the China are developing cutting-edge AI chips. Companies developing these include incumbent tech giants like Huawei and also startups such as YITU Technology, Cmbricon and Horizon Robots. The YITU Technology, a Shanghai based AI startup launched its first AI chip called “QuestCore” in May 2018 which offers visual analysis performance upto 5 times faster than similar products available in the market. Chips are one of the core technologies in AI and AI chips are set to be applied to a wide range of areas in China some of which include, intelligent driving, intelligent security, robots, smart household appliances and many more.
- Penetrating into service sector: Another popular trend in China is the application AI technologies across service sectors. Didi Chuxing, China’s leading online ride-hailing platform has recently installed cameras inside every car for its premier services. The AI visual analysis can help monitor drivers’ reckless driving behaviors and intervene accordingly. In addition, the AI technology can give drivers report on their bad driving habits. Because of Didi, traffic accident rates have reduced by 15%. Another company called Miniglamp is initiating personalized services enabled by AI for banks. The app will be focused on enhancing customer experience of banking service.
Market Size and Forecast
- In the 2018, the AI market in the China had hit around $4.78 billion. In addition, with this market value, China’s AI industry market share expanded to 12.5% in 2018 from only 9.4% in 2017.
- Within the AI market, the compute vision application segment took the largest share with a market value of $750 million respectively.
- Other AI related industries such as cloud computing, big data and IoT markets were also valued at $ 12.8 billion, $76.2 and $170 billion respectively.
2018 Chinese AI strategy outlined by the government highlights following vision for the AI development in the China:
- By 2020, China has the goal to exceed gross revenue of AI industry by $22.5 billion and AI related industry by $150.8 billion respectively. This is expected to put China into the league of most advanced countries in digital era of the world.
- By 2025, China has plans to reach core AI and AI related industry’s gross output to exceed $60.3 billion and $754 billion respectively making China a leader in several AI spheres.
- Finally, by 2030, China intends to become “the world’s primary AI innovation center’ with core AI and AI related revenues to exceed $150.8 billion and $1.5 trillion respectively.
- As of 2018, China also has 3341 AI enterprises which is one fifth of the total AI enterprises around the world i.e. 15916 firms.
Some of the factors that make AI landscape of China unique in their approach are as follows:
- Multilateral expansion: Chinese companies in the AI ecosystem of China are more tenacious, they are continuously innovating because they are searching for every possible business models in which AI can have its use case. For instance, AI in retail or AI in education and their possible use across the value chain of these businesses. In China, AI is changing way people eat, shop etc. which is leading AI development to gain a great momentum and change the traditional industries faster. Thus, AI in China is leading a multilateral expansion and sectors mostly, healthcare, transport and energy are likely to benefit the most.
- Heavy companies vs. lightweight companies: Chinese AI companies are more heavyweight which means they would construct something incredibly complex but once it is built, it would become a go to channel for the businesses. Chinese AI companies are also more competent at raising significant amounts of money, test ideas and scale them efficiently. For instance, In China, there is an AI company called Meituan which has built a 600,000 person delivery engine, riding moped with batteries that have short lifespan, yet the system enables every Chinese consumer to order food on their way home and deliver it by the time they reach home. Despite of that, the company needs to serve 25 million customers every day to earn profit. Meituan’s business model is heavy while other companies such as Yelp and Groupon are lightweight companies. China can leverage on the heavyweight model as they have large customer base, inexpensive labor and can earn profit by tapping onto economies of scale.
- Chine outshines in AI implementation and execution: China is taking the lead in implementation by creating value using AI across industry verticals. The proliferation of AI is China is high due to two reasons. First, China received 48% of the total global funding for AI development and second, China has the most active number of companies in comparison to other countries with 85% companies identified to be ‘active players’ in AI. While number of active players in other countries is only around 40-50%.
- China’s technology transfer: Chinese AI companies are heavily investing in US AI industry leading technology transfer from US to China. Chinese participation in VC backed startups has increased 10-16% until 2018. Overall FDI flow of China is now $250 billion where $45.6 billion alone has been invested in the US. In 2018 alone, China’s investment in AI companies in US reached a total of 27 deals worth $514.6 million altogether. Similarly, China’s investment in AI related industries in the US is also evident.
- In the superpower race of AI, China is tremendously catching up with US predominantly because of cooperation between Chinese government, the private sector, investors and academia. The country also has largest customer base in the world and the user base is comfortable in sharing data. Considering these factors China is aggressively investing in AI technologies within the country itself and globally especially within US.
- At present China is the second largest economy in the world (after US) and one of the first countries in the world to introduce a national AI strategy. In line with that, in 2018, China announced their goal to ‘take over the world’ in AI technology. The Chinese government has big hand in supporting AI development in the China. Both provincial and city governments are building cities, the size of Chicago and they have been designed keeping autonomous vehicles in mind. Two layers of road has been constructed where one layer is for pedestrians and second for cars, limiting possibilities of accidents. Highways are embedded with sensors and construction plans of smart cities, airports, transportations and other high-spend infrastructure projects are being planned considering use of AI.
- The Chinese government is also supporting the AI funding scene by first, disbursing funds through government guidance funds ‘GGF’ set up by local and state-owned governments. Until now, the government has spent $1 billion on domestic AI startups via GGF. Further, the fundraising target of the government is set at $500 billion while that of private funds is set at $300 billion.
- In 2018, Chinese AI firms received about 60% of investments in opposition to US AI companies that could only gather upto 51%. Experts also cite that speed of investment in China is relatively fast and growing tremendously in comparison to other countries. The average time for Chinese companies from commencement to receiving funding is 9.78 months compared to US where average time is 14.82 months.
- The only area where China is hindered in its AI development goal is talent pool, in order to mitigate that too, China is attracting talent from different parts of the world by issuing scholarships and lucrative incentive packages to attract western expertise to come and work for the development of AI. In addition, they are also working for the retention of existing talented individuals within the country.
Key Market Players
As per the investment funding received and on the innovation front, the top 10 AI companies that are on the frontline in China are as follows:
- Yitu Technology
- Horizon Robotics
The government in China is supporting innovation of AI which has led China to shed its copycat/follower image and shift to a cutting-edge leader image. The AI companies in China are receiving lucrative funds and reaching high levels of market adoption because of increased government support to research and innovation. The innovation leader image of China in AI has also attracted foreign companies to establish their innovation & research labs within China which is turn is driving the AI development in the country.
In addition, China is also aware about its weaknesses in AI landscape and are actively trying to mitigate those problems via execution of national policies like data and talent protection against foreign market assault. The country is also aggressively funding foreign investments especially in the US. Together government, private companies, investors and academia are collaborating to meet the AI goals of the country.
- NLP- Natural Language Processing
- AI- Artificial Intelligence
- GDPR- General Data Protection Rule