China’s share of global AI investment shrinks as headwinds take their toll

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China’s share of global artificial intelligence (AI) investment is shrinking amid ongoing trade tensions with the US and efforts to curtail Chinese firms’ access to American components, according to new research.

Why it matters: China hopes to become a world leader in artificial intelligence by 2030, according to a 2017 plan by the State Council, the country’s cabinet.

  • China overtook the US in AI-focused venture capital investment in 2017. Nonetheless, it was unseated a year later as investments in American startups more than doubled.
  • Several of the country’s biggest AI firms were placed on the so-called US Entity List, effectively blocking them from doing business with American companies.

“If the Chinese AI chipset industry starts to take over, that will be China’s opportunity to reclaim the top spot. Startups like Horizon Robotics, Cambricon Technology, Unisound, and Pony.ai seem to be unicorns in the making.” 

—Lian Jye Su, principal analyst at ABI Research, told TechNode

Details: AI investment in the US totaled $9.7 billion in 2018 compared with China’s $7.4 billion, according to ABI Research. In year-on-year comparisons, US investments in AI grew 120% while those in China rose 54%.

  • The US-China trade war has resulted in “collateral damage” in AI investment in China, while blacklisting Chinese AI firms has temporarily halted AI development, according to the research.
  • The US accounted for 52% of global AI investments in 2018, a figure that could rise to 70% this year.
  • China’s traditional industries have also been slow to adopt AI given the relatively cheap labor costs. “This means less risk-taking in AI startups that are less mature,” according to ABI.
  • Meanwhile, China’s startups face challenges expanding internationally as a result of differing regulations to their home market.
  • Nevertheless, the country’s favorable policies and regulations are set to drive adoption in the region, the researchers said.
  • China’s venture capital market is typically responsive to new directives from the government, and updated mandates could boost investment, Su told TechNode.

Context: In early October, Sensetime, iFlytek, Megvii, and Hikvision, among others, were placed on a US trade blacklist. A number of these firms said they don’t expect the move to have a significant effect on their businesses.

  • Regardless, the ban cuts off supplies of US-made hardware to these companies, whose components are used inside their products.
  • At the same time, the government has scaled back spending as macroeconomic factors take their toll. According to iFlytek’s latest earnings, growth for some of its businesses suffered as a result of belt-tightening across government and private sectors.