The artificial intelligence (AI) bot "ChatGPT", developed by Californian company OpenAI and backed up by Microsoft, seems to be taking the world by storm, where an estimated over 100 million people have used the app in the first two months of its release, making it the fastest-growing consumer app in history. The global furor around the ChatGPT application that provides coherent, essay-like, responses to virtually any query has also spread to China's tech and business communities fueling massive competition, with big Chinese tech companies announcing plans to introduce their own ChatGPT-like products and services.

ChatGPT & China - Challenges on many levels

Since its launch in November last year, ChatGPT has sparked a frenzy among Chinese entrepreneurs and companies, not least the internet-savvy, young generation of Chinese. On the other hand, concerns are growing on the part of state institutions and regulators, as besides the huge commercial potential, the appearance of ChatGPT also harbors domestic political and social risks, which may not be easy to control.

ChatGPT and the Chinese Internet users

Chinese netizens are currently officially unable to access ChatGPT. Although neither OpenAI nor ChatGPT is banned yet by China's "Great Firewall" regulations, it is OpenAI's decision not to launch ChatGPT in China (even Hong Kong phone numbers are not allowed to log in) seems to preclude that very fact, that "Conditions in certain countries make it difficult or impossible" to operate (OpenAI quote).

Nevertheless, young Chinese internet users have uncovered workarounds, such as using VPNs and foreign phone numbers to access and test Open AI offer in many practical and creative ways. Using ChatGPT as a job counselor, financial manager, movie reviewer, or even a dream translator, and last but not least to slash their homework time, Chinese netizens immediately afterward send feedback about their ChatGPT-experiences, where it quickly became a hot topic on Chinese social and search platforms.

Besides the charm of the new and hard-to-access, ChatGPT's popularity may also lie in its ability to answer questions in Chinese, a feature that exceeded the expectations of many users. Although the accuracy of ChatGPT's answers in Chinese often falls apart upon closer examination (notably compared to the Ernie bot), and it makes factual mistakes.

ChatGPT and the Chinese Tech-Giants

"So why are we unveiling it today? Because the market demands it!"
(Presenting the Ernie bot, Robin Li - CEO of Baidu said, that he knows that the bot is not perfect)

Admitting ChatGPT isn't officially available to Chinese netizens it's not a surprise that Chinese tech companies, - first and foremost the "BAT" technology giants - now want a slice of the action by announcing to develop of rival versions of ChatGPT-like services.

The initial presentation of Baidu's "China first mover" Ernie bot* (16.03.2023) was met with a rather disappointing reception by a majority of analysts due to the lack of a live demonstration and its shortcomings compared to its US counterpart ChatGPT (which caused Baidu stocks to drop by 10% at times), the opinion now seems to be moving and put into perspective that the Ernie bot is, - at least for the Chinese market, - a competitive rival and alternative of OpenAIs ChatGPT.

While Baidu took the stage first, E-Commerce giant Alibaba stated, that it is internally testing a ChatGPT-style tool, and WeChat parent company Tencent has entered the race as well, substantiating its plans for ChatGPT-style and AI-generated content and uttering that relevant research is ongoing. In the meantime, online retailer JD.com plans to integrate natural language processing (NLP) technologies like ChatGPT into its services, also NetEase is researching the integration of AI-generated content into its education division, and ByteDance's AI lab has launched research initiatives to support its virtual reality branch, just to name a few other Chinese tech & internet related top dogs throwing their hats in the ring.

Right now, the natural question will be whether Chinese companies can catch up with what's happening in the US, where every tech company is also seemingly in the chatbot race. In the meantime, AI-related stocks listed in mainland China have moved up noticeably in the first two months of 2023, as a direct response to the rising public interest in ChatGPT.

ChatGPT vs regulations, politics, and geopolitics

Over the past ten years, China's generative AI landscape has been advancing rapidly and is perhaps the most vibrant to watch aside from the generative AI scene in Silicon Valley. Today, China is the only protagonist outside of the U.S. to develop a complete “generative AI stack” – from foundational models to applications. But the recent emergence of ChatGPT poses significant challenges to China's stated aspiration and strategic goal to emerge as a global AI innovation powerhouse towards the end of the decade. 

China has been steadily establishing a national agenda for AI development since 2006, actively promoting the growth of its data economy, defined as a factor of production, while state regulators implemented strict scrutiny of the country's major tech and internet companies, increasing oversight of data security and „critical" content.

Dealing with the chatbots might be even more challenging for regulators, as developers cannot necessarily control the output to ensure it complies with the official narrative and agenda. Therefore, - with the application of domestic ChatGPT-like chatbots -, Chinese businesses face the dilemma of convincing customers and investors, that they are not falling behind a high-potential technology. At the same time, they must avoid being recognized by the regulators as creating new products, services, and business models that may launch hard-to-control security issues.

It seems likely that the Chinese government may regulate AI-based language models like ChatGPT as part of its far-reaching attempt to control the tech and internet-related industry. However, the specific nature and extent of these regulations are currently unclear.

ChatGPT, like 5G mobile networks, could also be seen as a symbol that goes a long way off domestic control and censorship by depicting it as part of the broader U.S.-China rivalry, where competition over AI carries importance that extends beyond the digital domain.

From a geopolitical perspective, it is not only who leads in AI but also who sets the rules for how it's going to be used around the globe, a scenario, where many Western analysts believe that U.S. export restrictions on the most advanced semiconductor chips could significantly curb China's development of large-scale generative AI models, which typically require large amounts of compute to train.

Concluding Thoughts

It will be difficult for Chinese AI chatbots to compete in the short term, where U.S. companies still have the upper hand. However, Chinese companies and AI protagonists hope that the advantage of a large market, more accessible data, and direct government support can quickly bridge the technology gap in a foreseeable amount of time to get on par or even overtake the U.S. As the market is so distinctive from the West on many dimensions, China, with its giant e-commerce, supply chain, and B-2-C sectors could see entrepreneurs build competitive AI-first companies to serve these markets as a starting point.

As a popular phrase in China's science and tech world stated: "弯道超车  -  to overtake another car on a bend." We will see.

*ERNIE is a multimodal model by Baidu. ERNIE stands for 'Enhanced Representation from kNowledge IntEgration'. The Chinese name is 文心一言, or Wenxin Yiyan.

Dirk Müller
VBU Partner Shanghai

The author is a consultant for strategy and strategic marketing. As the VBU Partner in Shanghai / China. He supports small- and medium-sized companies on their way to China and to be successful in China - through trend and market analyses, strategy development, project support, intercultural competence, and a broad on-site China service network.

(Photo: D. Mueller)