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AI & Robotics

Source: “AI Basic Data Service Market Size Approximated 2.6 Bn Yuan in China in 2018” , iresearch.com, 2019

In recent years, China has issued various regulations to promote the AI industry, including “Made in China 2025”, “Action Outline for Promoting the Development of Big Data”, and “Next Generation Artificial Intelligence Development Plan”. As the AI industry is supported by the government, it passes a clear message that this sector has a promising future in China and thusly, is attractive to investors.

China’s AI industry has experienced three phases of development—the period of stagnation (the 1950s-1970s), the period of steady development (late 1970s-early 21st century), and the period of rapid development (early 21st century-present). [1] China is a world leader in AI in terms of patent reserves, talent pool, number of research papers, and number of companies, but there is still room left in dimensions of patent internationalization, the number of companies at the basic level, and the proportion of outstanding talents. China continued to lead the world in 2021 in terms of the quantity of AI journal, conference, and repository publications—63.2% more than the US when all three publication categories are taken into account. [2] The market size of China’s artificial intelligence industry is expected to exceed 270 billion RMB (around $39.9 billion) in 2023 due to the acceleration of the economic intelligence transformation process. [3]

Around $93.5 billion was invested worldwide privately in AI in 2021, more than twice as much as was invested privately in AI in 2020. [2] According to newly released data from IDC, global AI revenue is expected to grow 19.6% year-over-year to $432.8 billion by 2022, including software, hardware, and services. And it is expected to surpass the $500 billion thresholds in 2023. [3] The number of AI-related investment events in Europe was 40 in 2020, and the investment amount in the same year reached $3.972 billion. Comparatively, there were 101 AI-related investment events in the U.S. in 2020, and the investment amount reached $42.923 billion. Despite escalating geopolitical tensions, China and the United States accounted for the majority of international partnerships in AI papers between 2010 and 2021, growing by five times since 2010. [4] Nonetheless, the number of newly financed AI businesses and overall private investment in AI were both three and two times more in 2021 in the United States than in China, which came in second place.

The growth trajectory of China’s AI industry wasn’t a smooth upward-trend line. The amount and numbers of investments in the AI industry in China have been growing at a high rate since 2014, with the first decline happening in 2019, whereas the number of AI investments as a percentage of the total number of investments (including other industries) in 2019 has increased rather than decreased. [1] The decrease in financing size was on account of the cooling down of the equity investment market and the intensification of competition in the industry. The hardware and enterprise services are the mainstream investments, and AI + education has started to become popular since 2017. It is worth mentioning that the “double reduction policy” in education, which was introduced in July 2021 to reduce students’ burden of homework and out-of-school training, has contributed to the growth of the AI education industry. The 2019 Global Educational Robotics White Paper estimates that the educational robotics market will reach $550 billion by 2023, which is good news for VC investors of China’s EdTech. [5] 

Investors in China’s AI industry consist of professional and non-professional investment institutions, with international investment institutions being more active than local ones. [6] The corporate venture investments are dominated by China’s Internet giants (such as Baidu, Tencent, and Alibaba). Influenced by the governmental policies as well as the conservative market, which shows the tendency to choose projects with more stable cash flows, faster commercialization processes, and lower risks due to the economic pressure and policy changes caused by the epidemic in recent years, the projects in the field of education, chips, and industry solutions in series A-C have become popular in recent years.