AI Could Add USD600 Billion to China’s Economy

AI could disrupt transportation and other key sectors in China and add significant economic value by 2030, according to a new report by McKinsey.

But success will only come about through strategic cooperation and by building new capabilities in multiple areas, writes Kai Shen, Xiaoxiao Tong, Ting Wu, and Fangning Zhang from the management consulting firm.

China at the forefront of AI

The report cited several reasons why China is currently at the forefront of AI. For instance, the country produced about one-third of both AI journal papers and AI citations worldwide in 2021.

In terms of economic investment, China also accounted for nearly one-fifth of global private investment funding in 2021, attracting USD17 billion for AI start-ups. Indeed, technology leaders such as Alibaba and ByteDance are household names in China and have become known for their highly personalized AI-driven consumer apps.

The report identified clusters of use cases where AI is expected to create upwards of USD600 billion in economic value annually. As a comparison, the 2021 gross domestic product of Shanghai, China’s a city of nearly 28 million was roughly USD680 billion.

The top sectors identified by McKinsey include the automotive, transportation, and logistics sectors, which are collectively expected to contribute the majority (~64%) of the USD600 billion opportunity. Manufacturing is expected to drive another 19 percent, enterprise software 13 percent, and the remaining 4 percent of opportunity by healthcare and life sciences.

However, realizing the value of AI would require every sector to drive significant investment and innovation across enabling areas. Key steps required to advance AI can be broadly classified under:

  • Data: Access to high-quality data and the creation of a data ecosystem
  • Talent: Build the requisite talent profile by upskilling technical talent
  • Technology: Increase digital adoption, data science tooling, and advancing cloud infrastructures.

Finally, efforts should be made in terms of AI regulation and ecosystem orchestration as part of strategy efforts.

The report’s authors caution that there is no low-hanging fruit among business domains in the sectors with the most valuable use cases.

“Rather, our research finds that unlocking [the] maximum potential of this opportunity will be possible only with strategic investments and innovations across several dimensions – with data, talent, technology, and market collaboration being foremost,” they concluded.

"Working together, enterprises, AI players, and government can address these conditions and enable China to capture the full value at stake.”

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