The AI Tsunami in China: A Forecast of Industry Consolidation

JJohn September 22, 2023 3:57 AM

China’s blossoming artificial intelligence sector is poised for a shakeup, as the rush to develop generative AI models intensifies. However, as cost and profit pressures mount, industry experts predict that only the strongest players will survive.

China's AI boom and imminent shakeout

China's fervor for generative artificial intelligence (AI), originally sparked by the unprecedented global success of OpenAI's chatbot, ChatGPT, has led to an ongoing 'war of a hundred models'. This AI boom has triggered a surge in product launches from startups to tech giants, with announcements popping up almost daily. However, with the struggle to find viable business models and rising operational costs, investors are predicting a forthcoming shakeout. This consolidation is inevitable as the market becomes saturated and players grapple with increasing cost and profit pressures.

China's rapid adoption and development of artificial intelligence has resulted in the creation of at least 130 large language models (LLMs). This impressive number accounts for 40% of the global total, ranking China just behind the United States, which holds a 50% share. Furthermore, Chinese companies have also announced dozens of 'industry-specific LLMs' that are connected to their core model. Despite this proliferation, a significant number of these models are too similar and lack distinctive features, which further contributes to the heightened competition and eventual consolidation.

Survival of the fittest in a saturated market

According to Esme Pau, head of China internet and digital asset research at Macquarie Group, the race is on for survival in the AI sector in China. As the market becomes increasingly flooded and competitive, only the entities with the most robust capabilities will outlast the others. Pau anticipates a price war and a consolidation in the industry as players compete aggressively for users. The predicted shakeout will likely eliminate LLMs with lower capacities due to chip restrictions, high costs, and intensifying competition.

The opinions on which firms will survive this predicted shakeout differ significantly among industry experts. Some believe that only two to three general-purpose LLMs will dominate the market due to their unique offerings and business models. This viewpoint emphasizes the importance of experienced founders in startups and their potential to steer their companies towards success amidst increasing competition and market saturation.

Headstart of China's tech giants in AI race

China's tech giants, Alibaba, Tencent, and Baidu, are considered to be in a favorable position due to their early headstart, vast resources, large user bases, and extensive services. They are in an advantageous position to offer generative AI services as an additional feature to their existing cloud users. However, their dominance also raises concerns about the potential monopolization of the AI industry in China, which could stifle innovation and competition.

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