How OpenAI’s exit from China will reshape the country’s AI landscape

OpenAI’s abrupt move to ban access to its services in China is setting the stage for an industry shift, as local AI leaders from Baidu Inc. to Alibaba Group Holding Ltd.

The creator of ChatGPT this week sent memos to Chinese users warning that it will cut off access to its widely used software and AI development tools starting in July, triggering a rush to fill the void. Since Tuesday, at least half a dozen companies and startups, including Tencent Holdings Ltd. and Zhipu AI, have started offering incentives to developers who make the switch.

OpenAI’s move will accentuate the divide between China and the US, which are trying to counter Beijing’s efforts in AI and chips. While the startup’s exit provides an opportunity for industry leaders to grow their user base, it also deprives entrepreneurs and financially struggling startups of some of the best tools available to fine-tune or launch their AI applications.

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For China, this could help launch many smaller startups created during the “battle of a hundred models” following ChatGPT’s debut in late 2022. And a bigger concern may be whether open-source models like Meta Platforms Inc.’s Llama . also cut off access, said Bernard Leong, CEO of Singapore-based Dorje AI.

“There will probably be a bloodbath in the big language models and I suspect there will probably be very few participants left,” said Leong, who is also the founder of technology podcast Analyse Asia. “There will be very few winners and these will be the biggest in China.”

Chinese artificial intelligence-related stocks, including Alibaba and Iflytek Co., rose on Wednesday.

Big companies were quick to spot the opportunity.

For users migrating from OpenAI, Baidu promised Free AI model fine-tuning and expert guidance on its flagship Ernie model, along with 50 million free tokens that developers can use to query the bot. Alibaba and Tencent have published announcements encouraging the change. 01.AI from technology pioneer Kai-fu Lee praised heavy discounts.

Baichuan, which is backed by Alibaba and Tencent, offered 10 million free tokens. SenseTime Group Inc. suspended 50 million. Zhipu distributed 150 million tokens and a series of training sessions to facilitate the transition. Even Microsoft Corp. – OpenAI’s largest sponsor – published a step-by-step guide on WeChat on how to migrate to your local service, operated by local partner 21Vianet.

North American companies such as OpenAI, Meta and Alphabet Inc. are world leaders in generative AI, which spits out text, images and video from simple commands. Supporting these models are application programming interfaces that developers use to build and refine their own platforms to integrate services like ChatGPT or their own proprietary models.

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This was a boon for Chinese developers starting from scratch, who accessed OpenAI’s tools through virtual private networks or other ways to bypass the country’s Great Firewall. Many local developers — especially those without financial resources — preferred training AI systems and applications through OpenAI tools because they were considered industry benchmarks.

OpenAI is now threatening to sever the connection.

“Top Chinese large language models can benefit from restricted access to OpenAI, and this will help filter out smaller and less effective market players,” said You Chuanman, head of the IIA Regulation Center at the Chinese University of Hong Kong-Shenzhen. and Global Governance. “At the same time, it will be more difficult for Chinese developers to use the most advanced global AI algorithms.”

OpenAI’s move coincides with growing pressure from Washington to restrict Chinese access to the most advanced artificial intelligence and semiconductor technology. The US Treasury Department laid out plans over the weekend to further restrict investments by US individuals and companies in China, with a focus on curtailing next-generation technologies.

In the long term, industry experts say a lack of access to global tools could further impede Chinese players in AI in general as they try to catch up to the US. Alibaba Chairman Joe Tsai said it would take at least two years for domestically developed AI models to catch up to those in the US.

It could also accelerate migration abroad by Chinese technology startups looking for faster-growing markets with less political uncertainty.

“This situation is directly related to the ongoing competition between China and the US in cutting-edge technologies,” said Neil Zhu Xiaohu, founder and chief scientist at University AI, which trains Chinese companies.

“We had US laws targeting Chinese semiconductors previously and more recently, there are semiconductor and AI work restrictions, so the restriction of China’s API services is not something that happened out of nowhere.”