China still lags in AI innovation race despite besting US in patents

Despite scoring $6.1b in funding for its AI startups, Chinese companies may find it hard to capture the Western market.

Although investments into China's AI startups dwarf the rest of the world - almost 70% higher than those in the US - a report from LUX research suggests that China has yet to fully cement its status as a global AI leader.

The total funding pooled into Chinese AI startups from 2014-2018 hit $6.1b, compared to only $3.6b by the U.S, data from LUX Research show. In terms of the number of owned AI-related patents, China has also surpassed the U.S. within the same period, as well as neighboring countries, Japan, India and South Korea. Despite topping the volume of patents, the same study revealed that China failed to diversify its investments across different areas of AI technology.

Despite massive capital injections into the country’s AI startups, analyst Jerrold Wang iterated that a lack of diversity will make it challenging for Chinese companies to successfully capture the U.S. and European market.

AI applications in China focused only on a few market segments, such as finance, retail and government causing industry sectors like manufacturing to lag behind as such is not yet considered a strong focus for China.

“On the surface, all innovation-related data indicate that China is poised to take over the world. Diving deeper, we find that all the hype around AI in China is warranted; however, it only highlights a few platform technologies and market segments,” Wang says.

The study looked into five major areas, namely, Voice Recognition, Natural Language Processing (NLP), AI chip & edge computing, Fundamental AI, and Computer Vision. Out of the five, only two were given focus by China’s venture capitalists (VC) in the last year, with investments pouring largely into Computer Vision, and only a little on Fundamental AI.

On the positive side, investors who are keen to the Chinese AI market will find that untapped AI platform technologies present numerous investment opportunities. On the report’s analysis of VC investments, technologies such as NLP, Voice recognition and AI processor and edge computing emerge to be areas that yield medium market growth.

It remains though, that due to the narrow attention of AI technology investments, Chinese companies may only see rapid growth into its domestic market.

“Chinese AI companies will struggle to penetrate U.S. and European markets because they lack clear technology advantage over the leading local peers and their expertise in covering some Chinese market segments cannot be leveraged to cover the foreign market,” noted Wang.

Similarly, whilst China has published more AI-related patents and papers than any other country in the world, the study’s analysis indicates that it is still not leading the world when it comes to developing truly innovative technologies.

“Amongst the 2,100 spots for top-cited researchers, only 158 were occupied by scholars from Chinese research entities,” the report read. “Chinese researchers occupy less than 8% of the spots for top-cited researchers. In other words, China is still far from becoming the leader when it comes to pursuing novel and influential research in AI.”