Generative AI to drive China’s technology revolution
China’s AI market could see US$18.5 billion of revenue growth between 2022 and 2025.
- Leading AI players in China will enjoy multi-year growth momentum, with their evolving technologies empowering innovations in enterprise and consumer markets.
- AI monetization may take longer to materialize, especially for mission-critical applications that have strict accuracy and security requirements.
- Independent AI companies are uniquely positioned to offer solutions that are highly customized to industry needs.
The popular launch of ChatGPT, an AI-powered language model developed by OpenAI in late 2022, has catapulted the development of the entire AI value chain. The rise of generative artificial intelligence technologies could unlock US$18.5 billion of revenue growth in the next three years for China, according to CCID Consulting.
Leading AI players in China will enjoy multi-year growth momentum, with their evolving technologies empowering innovations in both enterprise and consumer markets. Nomura analysis suggests there is significant room for AI penetration in industry verticals such as finance, auto, and healthcare.
China’s AI market may grow to CNY336.9 billion by 2025, up from CNY205.6 billion in 2022, clocking a revenue CAGR of 18%, according to CCID Consulting. The AI software sector in applications such as speech recognition and natural language processing is itself expected to register a revenue CAGR of 41.5% from 2020 to 2025 domestically and could grow to become a quarter of China’s total software market, according to market research firm Frost & Sullivan.
Though the impact of generative AI is global, the leading camps for AI development have been concentrated in the US and China. US academic and industrial communities appear stronger in terms of original theories and AI infrastructure such as AI chips and developer frameworks. China’s advantage is its sizeable market for growing AI applications stemming from its large population and use of big data.
Its AI development could face immediate challenges as the US government restricts the supply of advanced AI computing power such as GPUs to a number of leading tech companies in China. Local Chinese players are working on an autonomous and controllable AI supply chain to narrow the gap with foreign peers, such as by designing AI chips in-house or partnering with domestic suppliers.
Monetization
Current monetization efforts for AI platforms and services are still at an early stage, but AI business models should eventually prove to be valuable to end-customers.
There are several possible directions for large tech firms to explore generative AI monetization: 1) providing model-as-a-service by offering in-house developed AI platforms and models to smaller technology companies and charging subscription or volume-based fees; 2) offering in-house developed GPT-like services to consumer or enterprise clients and charging license or subscription fees; and 3) incorporating generative AI technologies into existing product lines or business solutions.
However, AI monetization may take a longer time to materialize, especially for mission-critical applications that have strict accuracy and security requirements. As such, companies with aggressive investments in the early stages may face margin pressures or low investment returns.
Despite widespread market concerns that large tech companies are squeezing out smaller players due to economies of scale and aggressive pricing strategies, independent AI companies are uniquely positioned to offer solutions that are highly customized to industry needs. Tech giants may continue to focus on building large AI models and providing general-purpose AI services, such as computing power and data storage. AI software companies could carve their own niche by building industry-specific AI models by tapping their sector expertise and big data, which could help them enjoy a competitive advantage in the AI value chain.
For more on generative AI in China, read our full report.
Contributor
Bing Duan
China Technology and Telecom analyst
Joel Ying
China Auto & Parts, Technology & Telecom research analyst
Ethan Zhang
China Technology and Telecom analyst
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