In 2023, the global frenzy around artificial intelligence, fueled by the advent of ChatGPT, swept across the world. In China, where OpenAI’s chatbot is unavailable, startups and tech incumbents scrambled to develop their own AI models and applications, drawing upon the foundational pieces of the American upstart. Individual AI fans accessed ChatGPT through a web of black market vendors, keeping their accounts alive through often unauthorized virtual private networks.
Key Takeaway
China’s AI startups are facing declining investor enthusiasm, with a significant drop in investments and funding, amidst global frenzy around artificial intelligence.
Investment Decline in China’s AI Space
Despite the hype, venture capitalists haven’t been as enthusiastic about the nascent technology as one might assume. In 2023, China recorded around 232 investments in the AI space, a 38% decline year-over-year, according to research firm CBInsight. The total amount raised by China’s AI firms amounted to roughly $2 billion, 70% less than the year before.
Another report by a Chinese database shows a greater amount of funding, though it indicates the same downward trend. According to ITJuzi, China recorded 530 funding events in AI during the first 11 months of 2023, a 26% drop year-over-year. Those investments earmarked 63.1 billion yuan ($8.77 billion) in total, 38% less than the previous year and significantly smaller than 2021’s peak of 248.78 billion yuan.
Challenges Faced by Chinese AI Startups
The slowing in China’s AI funding isn’t entirely unexpected given the ongoing sluggishness of global VC investments. However, China’s AI startups face a unique set of roadblocks. American venture capital, which has historically been the major drive of growth in China’s internet sector, has plummeted since the onset of the U.S.-China decoupling. The prospect of listing Chinese tech firms on U.S. stock markets has also dimmed amid geopolitical tensions, so investors grew more cautious about backing hyped-up businesses with no clear exit channels or monetization plans.
Moreover, the capital-intensive nature of AI startups, which cost significant computing power, coupled with their unproven business models, can deter risk-averse local RMB funds.
Regulatory and Technological Challenges
All the while, the technological prowess of China’s large language models remains in question as developers face a prolonged shortage of AI chips. Internally, strengthened regulations have led to higher compliance costs for AI startups. Unlike their larger, better-funded counterparts, many startups lack the financial and bureaucratic resources to acquire the required AI license or meet the country’s internet censorship requirements.
Future Outlook
With limited funding available, 2024 might be a year of reckoning for many AI startups in China.
