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Trends and Predictions for China’s AI Sector




February 8, 2024

 

Driven largely by the emergence of tools like OpenAI’s ChatGPT, a worldwide fascination with generative artificial intelligence (“AI”) swept across the world and captivated investors in 2023. In China, where ChatGPT is banned, start-ups and established tech firms alike drew inspiration from the success of the popular American chatbot and raced to develop their own proprietary AI models and applications. Initially, it seemed that AI innovation was flourishing in China, but a closer examination of recent market data tells a different story.


Market research from American analytics company CBInsights shows that in 2023, China experienced a 38% year-over-year decline with approximately 232 reported investments in the AI sector. The same report indicates that the total funds raised by China’s AI firms marked a 70% decrease from the previous year at about $2 billion. Although Chinese database ITJuzi produced a different study which reports a higher amount of total funding, the data still aligns with the overall downward trend indicated by CBInsights’ research. While there are discrepancies between the American and Chinese studies (likely attributable to differences in methodology) the trends signalled, and consequent conclusions derived therefrom, are consistent.


Considering the sustained drop-off in global venture capital investments seen in recent years, the decline in China’s AI funding isn’t exactly a shocking revelation. However, macroeconomic contextualization reveals that China’s AI sector is facing distinct challenges, including:

·         U.S. restrictions on American investment in China;

·         reduced prospects of listing Chinese firms on U.S. exchanges; and

·         a U.S. export ban on high-end graphic processing units to China.



            While some Chinese AI start-ups have successfully relied on the prior successes and reputation of their founders to entice investors (eg. 01.AI), the majority of small firms are still struggling to secure funding from increasingly conservative investors.


In light of the foregoing constraints, Chinese AI development may prove to be challenging in the coming year.


Author: Roy Friedman, 2023/2024 Articling Student

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