Why Alibaba Is Critical to China’s Global GenAI Leadership

China has filed five times more GenAI patents than the U.S. over the past decade. That’s more than 38,000 patent applications in GenAI, according to the World Intellectual Property Organization. China is at the forefront of finding applications for new technologies, and that’s no different for GenAI.

Applications range from autonomous driving—fueled by the electric vehicle boom led by Chinese automakers BYD, NIO, Xpeng and others—to AI chatbots in e-commerce—led by companies like Alibaba and Bytedance. But perhaps we should be paying attention to hidden champions like NetEase. China’s GenAI is transforming retailers and consumer journeys across sectors, and global executives are competing in the dark. Alibaba’s experience is telling, and it’s paving the way for China’s GenAI transformation.

Global business leaders can take four actions based on lessons learned from early GenAI applications in China:

Leveraging China as an Innovation Hub for GenAI: Leveraging China’s rapid decision-making and agile customer base as a test bed for new GenAI-based products and initiatives.

Spread a wide net: The GenAI race has only just begun, and business leaders should consider current leaders from Microsoft to Alibaba, as well as the sea of ​​new players entering the GenAI market.

· Harness the business value of GenAI: Chinese companies are showing the way to large-scale adoption of GenAI. Either watch and learn, or, even better, partner to gain access to the latest applications and business models.

Protect your core: China’s AI genetics will take the world by storm, so you better be prepared from a data privacy and cybersecurity perspective, as well as keeping your competitive position in mind.

All things considered, the evolution of GenAI at Alibaba is the result of an enterprise-wide transformation that has spanned a decade.

Alibaba prepares for GenAI on a large scale

The recent past has been a rollercoaster ride for Alibaba. Alibaba went from being untouchable in the 2010s to being challenged by competitors, consumers, and regulators in the 2020s. The days of rapid growth were long gone, and Alibaba was looking for mature management models and approaches to growth, while rethinking some of its diversifications. Alibaba’s challenges have come thick and fast, and they continue to come.

Then, in March 2023, the company announced one of the most drastic reorganization plans in its 24-year history. Initially, it called for a split into a single holding group, six business groups, and multiple business units. IPO and financing plans quickly followed.

Interestingly, the sale of Alibaba Cloud and the planned IPO of Hema, its supermarket unit, were key moves in this restructuring, but within six months those plans had changed dramatically. The sale of the cloud business was canceled and the IPO of Hema was put on hold, largely due to reduced investor interest and changes in external policy.

Then, in October, the US updated the Export Control Regulations for Advanced Integrated Circuits to restrict the export of integrated circuits to China. This had a direct impact on Alibaba Cloud’s ability to offer advanced computing services, leading to the halt of the separation of the cloud services business.

At the same time, Alibaba underwent a major leadership shakeup. Zhang Yong resigned as chairman and CEO, replaced by Wu Yongming, who outlined a refined strategy focusing on the technology-based internet platform business, the AI-based technology business, and the global trading network.

GenAI at Alibaba: Not the next OpenAI

Alibaba is strengthening its core e-commerce business while reassessing its investments in offline retail. At the same time, Alibaba is maintaining its investments in new technologies. This is evident in its work on GenAI – despite suffering from US government sanctions on chips – as a leading competitor from China.

Alibaba Cloud then strengthened its AI ecosystem in November 2023 by open-sourcing its $72 billion general-purpose model. The move, aimed at becoming a compute provider like Microsoft rather than a model developer like OpenAI, signals Alibaba Cloud’s ambition to become a key player in the AI ​​domain.

The domestic large-model industry is still catching up with GPT 3.5, but is focused on building more large-model applications than the West. This disparity is partly due to China’s relative disadvantage in terms of access to high-quality data and high-performance chip sets, but also to a strategic choice that reflects the long-term preferences of many Chinese innovators for business applications. The latter is something the central government is looking to change, with a renewed focus on developing core technologies in China. It will just take some time to get going.

GenAI Application Masters

As Alibaba Cloud shifts its position in the AI ​​wave, it faces the challenge of proving its value in technology and profitability. This shift reflects not only Alibaba’s ambitions but also the changing landscape of China’s technology industry, where innovation and strategic agility are key to lasting success.

The United States will likely take the lead in creating cutting-edge AI systems. In addition, most American companies have access to better training data. But China has one superpower: creating and commercializing applications at high speed. For decades, China has been improving innovation from manufacturing processes to business models and ultimately to core technologies and organizational models. If anything, Chinese companies and entrepreneurs have been masters of applications by reconnecting new and existing technologies and business models.

One example is China’s live streaming industry. By far the most advanced in the world. Live streaming leverages a combination of existing video software technologies, computer vision, and natural language processing machine learning algorithms combined with an innovative business model that combines e-commerce with entertainment. Examples include Alibaba’s Taobao Live and TikTok’s global success. New to the world? Maybe not, but certainly with great innovation and influence.

GenAI Underdog NetEase Powers Real-World Business Apps

Alibaba’s lesser-known counterpart, NetEase, has taken a different path than its mega-competitors. NetEase has focused primarily on building virtual environments in games, digital communities, and communications. Away from the spotlight and despite stiff competition from Tencent, Alibaba, and JD.com, NetEase has managed to maintain a strong position.

The company addresses regulatory challenges and adapts to changes in market access policies and licensing requirements, especially in sectors such as online education.

In addition, the company invests 15% in R&D (calculated based on financial results, https://ir.netease.com/) per year, part of which goes to a range of AI applications for virtual environments. NetEase has committed to a significant annual investment of at least $1.4 billion for the development of large language models and other technological areas.

For example, in a significant step towards applying AI and gaming technologies to real-world applications, NetEase’s AI division, Fuxi Lab, has partnered with China State Construction Engineering Corp. to develop intelligent robots for the construction industry.

China’s GenAI lead still under construction

It should come as no surprise that China is prioritizing the use and implementation of GenAI solutions. China has been in a state of economic reform for decades. However, as business growth in China stagnates, Chinese exporters, those with international ambitions, and multinationals in and entering China have a new challenge. How can you run a profitable business today while preparing for future innovation in a world of growing geopolitical, economic, and social uncertainty?

GenAI offers the potential to increase productivity, automate production, efficiently utilize a shrinking labor force, and accelerate scientific discovery. China’s GenAI is here to stay. But will Chinese industry catch up fast enough to create another comparative advantage? It’s too early to tell. It’s clear that China can no longer rely on cheap labor or manufacturing prowess (still number 1 in the world!), and even its innovation advantage is becoming increasingly dependent on AI and constant access to the latest technologies.