In 2023, the global frenzy around artificial intelligence, fueled by the arrival of ChatGPT, spread across the world. In China, where OpenAI's chatbot is not available, startups and tech operators have rushed to develop their own ai models and applications, building on the American upstart's building blocks. Individual ai fans accessed ChatGPT through a network of black market vendors, keeping their accounts alive through often unauthorized virtual private networks.
At first glance, generative ai is in full swing in China, but a closer look suggests otherwise. Despite the commotion, venture out Capitalists have not been as enthusiastic about the nascent technology as one might suppose.
In 2023, China recorded around 232 investments in the ai space, a 38% year-on-year decline, according to a research firm. ai-trends-2023/?utm_campaign=SO_STOF_TW_Q42023_STATE_OF_REPORT&utm_content=280766023&utm_medium=social&utm_source=twitter&hss_channel=tw-110171914″ target=”_blank” rel=”noopener”>CBInsight. The total amount raised by China's ai companies amounted to approximately $2 billion, down 70% from the previous year.
Another report from a Chinese database shows a higher amount of funding, although it indicates the same downward trend. According Uses, China recorded 530 ai funding events during the first 11 months of 2023, a 26% year-on-year drop. Those investments amounted to 63.1 billion yuan ($8.77 billion) in total, down 38% from the previous year and significantly less than the 2021 high of 248.78 billion yuan.
The discrepancy in the size of investments between the two reports could be attributed to their different methodologies for counting funding rounds. ITJuzi might have a better understanding of local funding activities than its foreign counterpart, especially as China's ai startups have become more discreet about their US dollar funding. Many now fear US regulatory scrutiny over US capital flows to their ai businesses.
From a broader perspective, the slowdown in ai funding in China is not entirely unexpected given the current sluggishness of global venture capital investments. However, China's ai startups face a unique set of obstacles. US venture capital, which has historically been the main driver of growth in China's internet sector, has plummeted since the start of US-China decoupling. The perspective ofThe presence of Chinese technology companies in US stock markets has also softened amid geopolitical tensions, making investors more cautious about backing hyped companies without clear exit channels or monetization plans.
Furthermore, the capital-intensive nature of ai startups, which cost significant computing power, coupled with their unproven business models, may deter risk-averse local RMB funds.
A handful of Chinese ai startups with pedigree founders, such as Wang Xiaochuan's Baichuan and Kai-Fu Lee's 01.ai, can still get good funding, but most small players face increasingly conservative investors . The mission to develop the Chinese equivalent of ChatGPT has fallen to deep-pocketed tech giants who have been hoarding ai chips, while less-resourced startups explore niche industrial applications based on open source or homegrown models.
Meanwhile, the technological prowess of China's big language models remains in doubt as developers face a prolonged shortage of ai chips. Amid the escalating technology war between the United States and China, Washington imposed an export ban on Nvidia's high-end graphics processing units to China.
Internally, strengthening 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 comply with the country's internet censorship requirements. Therefore, some focus their attention on the global market, which introduces a different set of challenges. While regulatory and political uncertainty may be a less significant obstacle, these startups have to navigate new user behaviors and an Internet ecosystem completely isolated from their local market.
ai venture companies could turn to foreign investors, most likely American, for funding and, eventually, help with go-to-market strategies. But before they can To engage with US institutions, they need to have the right corporate structure, offshore data storage solutions, and even foreign passports for their founders, so that Silicon Valley investors don't worry about violating US restrictions on related investments. China.
With limited funds available, 2024 could be a year of reckoning for many ai startups in China.
