Commentary: China’s AI Applications Should Match Its Strengths
By Vincent Chan
China started the year with significant progress in industries related to artificial intelligence (AI), such as large language models, robotics, animation and gaming. As developing AI models is costly, it is crucial to monetize them. Rolling out economically viable applications will be essential to sustaining long-term, high-intensity investment.
There are several factors to consider when analyzing the commercialization of AI in China. The first is the country’s per capita GDP, which is well below that of the average developed country. That suggests China could maintain higher growth rates than developed nations in the long run, and still has plenty of room to improve living standards.
Second, China’s elderly population is growing quickly. The United Nations estimates that in 2020, China’s ratio of people aged 65 and above to the working-age population was 18.2%, lower than in other major economies. In 2040, this ratio is projected to rise to 41.6%, close to Europe’s 43.1%.
Third, China’s economic structure differs from that of developed countries, with a smaller services sector and a much larger manufacturing sector. For example, in 2023, China’s GDP at current prices just exceeded $18 trillion, while U.S. GDP was close to $28 trillion. The GDP generated by China’s tertiary industry — the services sector — was about $10 trillion, just less than half of that in the U.S. However, the GDP produced by China’s primary (agriculture) and secondary (manufacturing) industries was 4.6 times and 1.4 times that in the U.S., respectively.
The size of an industry’s GDP largely reflects how much funding it can allocate to AI applications. As such, China’s AI applications will likely first thrive in the primary and secondary sectors.
China’s labor-intensive industrial subsectors — such as mining, food, textiles, equipment, automotive, electronics, steel and nonferrous metals — generate much higher value added than their counterparts in the U.S. Many of those subsectors involve tasks that are not highly value-added but are relatively dangerous and repetitive. Against this backdrop, replacing part of the workforce with industrial robots will be necessary for China to address its aging population.
Unlike traditional industrial robots, the new generation of robots need to become more “human-like” to replace labor on a large scale, meaning they must have some ability to think, accurately mimic human movements, and work for extended periods on a single charge — such as eight hours. To realize that, China needs to make breakthroughs in three key technologies: AI, batteries, and components needed for hand-foot actuators, such as motors and sensors.
China is currently leading in AI and battery technologies globally, and rapidly catching up in components technology. As a result, China’s AI applications are likely to first emerge in the form of new-generation robots for industrial and agricultural use, where the country has unique advantages.
Of course, AI robots will also replace labor in some services subsectors in China, such as warehouse workers and some catering and caregiving roles. Additionally, in light of the double whammy of declining birth rates and an aging population, AI will play a critical role in education and health care, especially diagnostic assistance.
The central government has made boosting domestic demand, especially household consumption, the core of its economic plans. Currently, China’s manufacturing accounts for about one-third of global output, far exceeding its 20% share of the global population. The country’s consumer spending only accounts for 13% of the global total. This discrepancy explains the nation’s long-term overcapacity and relatively low profit margins of its manufacturing sector.
To what extent China’s manufacturers will thrive will largely depend on the resources they can allocate to integrating AI and robots into production processes. Meanwhile, if the country’s high-tech industries lack sufficient domestic demand, it will become difficult to sustain profits needed to support them in the long term, particularly amid rising external protectionism.
Vincent Chan is a China strategist at investment advisory firm Aletheia Capital.
This commentary has been edited for length and clarity.
Contact translator Qing Na (qingna@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)
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