Local Chinese firms rush to fill the AI void after OpenAI abandons China market — Tencent, Baidu, and Alibaba sweeten LLM offers

OpenAI made a surprise announcement to its Chinese users that it will leave the market next week, July 9, 2024. Although this move will negatively impact companies relying on access to OpenAI's API for their products, it will also drive innovation and development in local AI models. DigiTimes Asia reported that local tech companies like Tencent, Baidu, and Alibaba are already moving into the market, offering "migration" plans and discounts to affected users.

Another large language model (LLM) firm, Zhipu, has even offered a special migration plan that includes training, consulting services, and tokens like those used by developers on OpenAI. Companies that rely on LLMs need to replace OpenAI quickly, thus pushing Chinese firms to step up to the plate and deliver a viable alternative.

While OpenAI's exit from the Chinese market may seem surprising, some industry experts expected it as part of Washington's move to limit Beijing's access to advanced technologies including AI and semiconductors. Furthermore, some speculate that this move was sparked when former NSA Director Paul Nakasone joined the OpenAI board and its security committee. Aside from OpenAI, other widely used U.S.-based AI models like Meta's Llama could also leave China, especially if the U.S. Congress expands its sanctions on the country to include cloud services and AI.

This exodus of mature LLMs could lead to a secondary AI boom within China. As of March 2024, over 200 firms have attempted to put up an LLM in China, with at least 117 getting a nod from Beijing. That's because all LLMs available for public consumption in China must go through regulatory approval, ensuring the Chinese Communist Party retains control of public opinion, social media, and the internet.

Aside from capturing the market that OpenAI will leave behind, this will also help bigger players as smaller AI startups could either fold or be snapped up by competitors in the wake of OpenAI's departure. According to Bernard Leong, CEO of Dorje AI, "There's probably going to be a bloodbath of the large language models and I suspect that there's probably going to be very few players left."

However, even if several Chinese players gain a short-term advantage when OpenAI leaves China, some say it could also hinder Chinese AI progress. If U.S. sanctions stop them from accessing the latest LLM developments, it could prevent Chinese developers from having tools that will help them drive local innovation further.