Sirmione Consulting Group

AI and Large Language Models: Competition and future trends in China

SirmioneCG

2023-10-26

Analysis on China's Policy Environment and Market Competition in AI and Virtual reality

The present state of China's market development in AI sector
Opportunities and challenges suggested by the overarching AI trend
The key position of Metaverse in China’s economic development
The Status quo of Open-source large models in China
A new approach for foreign investment in the Chinese market

With the continuous evolution of AI (artificial intelligence) technology, LLMs (large language models), generative AI, and DLRM (deep learning models) have gradually become the digital engines of modern economic development. LLMs are shaping the future trends of AI, as new business scenarios emerge and extensive datasets accumulate, the requirements for computing power and architecture are on the rise. China is making rapid development in the field of digital technology. For instance, China accounts for approximately 25% of the global AI chip market, and in the realm of cloud computing, China's market size is steadily expanding and projected to reach 1.2 trillion-yuan RMB by 2025. What is the present state of China's market development in this sector? What opportunities and challenges are suggested by the overarching AI trend?

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Focused on improving computing power and applications

In early October, six national level government departments, including the MIIT (Ministry of Industry and Information Technology) jointly released the 'High-Quality Development Action Plan for Computing Power Infrastructure.' The plan sets forth ambitious goals to be achieved by 2025, including reaching a computing power scale exceeding 300 EFLOPS, a target of 35% for the proportion of intelligent computing power, a balanced development of computing power in eastern and western regions, and a storage capacity goal of over 1800EB. This initiative aims to drive technological advancements and applications in various sectors including industry, finance, energy, and education. This demonstrates China's vision and determination to take a leadership role in the global stage in the field of computing. As of September 2023, Huawei's Atlas 900 SuperCluster represents one of the pinnacle achievements in global computing power, equivalent to the computing capacity of 500,000 PCs, providing robust support in addressing this challenge together with other top super computers such as Sunway TaihuLight and Tianhe.

Image credit: Huawei

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The key position of Metaverse in China’s economic development

In recent years, China has made significant advancements in the fields of Virtual Reality (VR), Augmented Reality (AR), AI, cloud computing, and high-speed internet infrastructure, which have propelled the widespread application and development of virtual world technologies. On September 8th, the MIIT in collaboration with five other national-level departments introduced the 'Metaverse Industry Innovation and Development Three-Year Action Plan (2023-2025)' as a strategic framework to expedite significant breakthroughs, support China's ambition to excel in manufacturing, network infrastructure, and cultural development. This action plan underscores the pivotal role of metaverse technologies in China's future economic development and provides clear direction for the industry's growth.

The market prospect of metaverse

In the era of Web3.0, the global metaverse industry market is rapidly growing. According to Statista's data, it is expected that the global metaverse market will reach 936.6 billion US dollars by 2030. According to a report by the China Industrial Research Institute, the size of the Chinese metaverse industry was approximately 42.5 billion Chinese yuan in 2022. Over the next 10 years, the global metaverse market is projected to grow at an average rate of 50%, and the domestic metaverse market will surpass at least 600 billion yuan by 2027, approaching 100 billion US dollars.

The substantial amount of content to enrich metaverse can be generated by AIGC (Artificial Intelligence Generated Content) technology. Research shows that the Chinese AIGC market is expected to reach 17 billion Chinese yuan in 2023. As a result of open source of LLMs and improvement of the ecosystem, the industry is expected to experience rapid growth with a projected CAGR (compound annual growth rate) exceeding 70% by 2025. It is estimated that by 2027, the Chinese AIGC industry will exceed 60 billion yuan, and by 2030, the market size will exceed one trillion yuan.

Image credit: Airui research

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Chinese Companies enthusiastically embrace metaverse

The "Action Plan" addresses the importance of establishing an industrial ecosystem for coordinated growth, with a specific emphasis on nurturing both prominent companies in the metaverse and specialized small and medium-sized businesses.

Tencent, a prominent tech giant, has adopted a comprehensive strategy primarily through investments and collaborations in various sectors like gaming, social media, and hardware. Tencent's substantial investments extend to global VR game developers, including influential pioneers like Roblox, Epic Games, and Mini Games, who have played a pivotal role in shaping the metaverse trend. Meanwhile, Alibaba has concentrated its metaverse efforts on the consumer shopping realm, with Taobao's virtual avatars and 3D environments serving as key drivers for the platform. Baidu, on the other hand, has introduced its blockchain platform "XuperAsset NFT" and launched "Xirang," a metaverse-oriented social app.

The metaverse has also captured the attention of a growing number of traditional manufacturing companies. BOE Technology, a global leader in semiconductor displays, has unveiled a high-definition optical VR system boasting an extraordinary 1500PPI ultra-high resolution. This VR technology enables 360° rotation, allowing for immersive three-dimensional model displays across a broad spectrum of metaverse applications.

On October 17th, the domestic metaverse company, Global Mofy Limited, achieved a successful listing on NASDAQ in the United States. The initial public offering (IPO) was priced at $5 per share, and a total of 1.2 million shares were issued, is expected to receive gross proceeds of $6 million. Global Mofy's business model primarily revolves around providing tailored digital technology services to the entertainment industry. Their revenue streams are primarily categorized into three segments: virtual content production, digital marketing, and the development of digital assets.

Regional Governments’ policies for the metaverse industry

As of now, data from "China Electronics News" reveals that almost 30 regions, including Beijing, Shanghai, Sichuan, and Henan, have systematically introduced regional-level metaverse industry action plans and guidance. These strategic measures are designed to facilitate metaverse development and applications across diverse industries by emphasizing technological innovation, infrastructure for platforms, and the augmentation of international partnerships.

For instance, Beijing's Tongzhou district is actively evolving into a metaverse application showcase zone, with a particular emphasis on its unique cultural and tourism content. Meanwhile, Shanghai is focusing on the pivotal role of government investment funds and the establishment of an industry fund dedicated to the "metaverse." This fund is designed to steer private capital towards supporting the growth of this industry.

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Open-source large models in China

With the unprecedented popularity of ChatGPT, in China, AI large models have rapidly become an integral part of daily lives. Data shows that there are at least 130 domestic companies developing large model products, with 78 of them focusing on general-purpose large models, and over half of these large models are open-source, with universities and research institutions leading the way in contributions.

Image credit: Citics Research

On August 31st, China approved the first batch of generative AI services for public rollout, large models from 8 companies and organizations, including Baidu, Sensetime, Baichuan Intelligence, and Zhipu AI were launched for public access. With the continuous enhancement of model capabilities and the vast user base in China, this empowerment allows other startups to build applications based on large models open interfaces, and the development of generative AI is experiencing a highly visible and rapid explosion.

AI is considered the next field that will disrupt China's industrial landscape after the wave of the internet. It holds tremendous economic potential, sparking a competition among cities to become the leading hub for AI. Beijing's Haidian district, which once became a national center for innovation and technology during the internet boom, is once again taking the lead with its abundant large model resources.

The Wisemodel community, affiliated with Tsinghua University in Haidian district, is in the process of creating China's version of Hugging Face. Tsinghua and Zhipu AI have jointly developed AI-CogVLM, a new generation of powerful SOTA multimodal model. CogVLM represents a new foundational model for visual language, has been open-sourced on Wisemodel. CogVLM enables deep integration of visual and language features, fostering research and industrial applications. As shown in the figure below, CogVLM can accurately identify all 4 four houses, whereas, for comparison, GPT-4V can only identify 3 of them.

Image credit: Zhipu AI

On September 8, 2023, Alibaba Ant Group unveiled the CodeFuse large model at the Bund Summit in Shanghai, available on the Wisemodel community. CodeFuse is an open-source code generation model designed specifically to support the entire software development lifecycle. It’s Code LLMs aiming at enhancing programming efficiency.

On October 17, Baidu Intelligent Cloud launched the "Qianfan AI Native Application Workspace," a one-stop, cloud-based platform for large model development and application. It supports the customization and development of large models, including third-party models. Baidu also introduced the latest iteration of its generative AI language model, ERNIE 4.0, claiming that its overall performance is on par with OpenAI's GPT-4.

In the wave of generative AI technology revolution, Baichuan Intelligence has achieved the record for the fastest ascent to unicorn status among domestic large model startups. They recently concluded a $300 million strategic Series A financing round, with participation from tech giants such as Alibaba, Tencent, Xiaomi, and several top-tier investment firms. Zhipu AI, a team originated from Tsinghua University, has amassed over 2.5 billion Chinese yuan in financing this year.

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A new approach for foreign investment in the Chinese market

China's international collaboration in the field of AGI (Artificial General Intelligence)

The Chinese Academy of Sciences has partnered with prestigious institutions like Stanford University, the University of Oxford, and the Austrian Academy of Sciences to launch initiatives such as the 'Frontiers of AI Forum' and the 'Joint Research Center for AI Ethics and Governance.' They are also collaborating with Omnicom on projects aimed at advancing 'Green Digital Technology for Sustainable Development through AI.'

CETC (China Electronics Technology Group Corporation Limited) has collaborated with MathWorks, an American company, to jointly develop an AI algorithm development platform based on MATLAB and Simulink. MathWorks has also partnered with the Chinese Academy of Sciences Institute of Automation to advance research in the fields of AI and data science.

CAICT (China Academy of Information and Communications Technology), EB Tech and NVIDIA (as an essential partner within the large model ecosystem cooperation community) have engaged in extensive collaboration in the areas of large model computing power services and metaverse applications. EB Tech is a leading Chinese AI computing power service provider that has established a strategic partnership with NVIDIA, becoming one of the first batch of NVIDIA's AI Innovation Empowerment Centers in China.

Baichuan Intelligence has joined the AWS (Amazon Web Services) Partner Network (APN) collaborating in the field of foundational models and cloud computing. Their open-source large model, Baichuan, is available on the AWS Marketplace. This AWS's API-based service allows enterprise customers to easily access a variety of foundational models provided by Baichuan Intelligence through Amazon Bedrock.

Stricter Foreign Investment Access

In August 2023, the 'Interim Measures for the Management of Generative AI Services' jointly released by five government ministries, including the Cyberspace Administration of China was officially implemented. These measures signify regulatory efforts within the burgeoning field of generative AI. They place notable restrictions on overseas service providers, yet they do not expressly forbid domestic service providers from utilizing overseas generative AI models. While general sectors do not require specific permits, certain fields like finance, healthcare, and internet culture, where relevant administrative permits are essential, may introduce additional regulatory scrutiny. In other words, under current foreign investment regulations, generative AI is not a sector where foreign investment is prohibited or significantly restricted, but due to potential regulatory lag, cautious consideration is still advisable.

Challenges and Opportunities, Progress in the Dilemma Game

Apart from the limited access to ChatGPT in the Chinese region, access to Hugging Face has also been largely restricted since mid-September. This month, US has tightened rules on advanced AI chip sales to China. This will limit China access to advanced processor which are critical for generative AI. Counterpoint research believes that while chip accessibility is not the sole determining factor, there is still a certain gap between China's leading AI large models and their global counterparts like OpenAI's GPT-4, and this gap may continue to widen in the coming years. However, the massive AI market size in China and its rapidly evolving development process provide opportunities for numerous domestic AI chip manufacturers. In the next 3-5 years, the market for "domestic production of AI computing power" may be opening up.

Additionally, the establishment of the Sino-U.S. Economic, Financial Working Groups at the end of September signals a shift from confrontation to long-term strategic competition between China and the US, despite future uncertainties. On October 24th, the Sino-U.S. Economic Working Group held its first meeting via video, indicating that the world's two largest economies remain closely interconnected, and the field of AI will inevitably continue to advance within the context of this competition.

The digital engine is not only a significant drive of global economic growth but also a transformative force for promoting global exchange and collaboration in the era of web3.0. John Carmack, a well-known advocate of open-source software, once said in an interview, "Since humanity has entered the digital and information age, what we consider obstacles will no longer exist, and if there are any obstacles, they are subjective."

The recently concluded sixth session of China's 14th National People's Congress approved a 1 trillion yuan central government bond issuance and an early allocation of 2.7 trillion yuan local government bonds, marking the commencement of a robust economic push in China for the fourth quarter. S&P's Global Ratings believes that China, with its large economic scale will continue to be a major driving force for global economic growth.

Much like prominent figures in the AI industry, including Microsoft, NVIDIA, Amazon, and Tesla, who have made astute choices by partnering with key entities in China, building robust relationships, managing risks effectively, and enjoying substantial returns, there is optimism that more foreign small and medium-sized companies will discover inventive pathways to enter and achieve success in the Chinese market.

With rich experience, Sirmione Consulting Group China-based team can provide market analysis and insights, assist you from virtual market presence, build your China business, establish partnership for you to accelerate sales and expansion, eventually achieve your sustainable growth in China.

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