KEYTAKEAWAYS
- OpenAI to stop API services in China starting July 9, 2024.
- Chinese AI firms poised to capture market share amidst US tech sanctions.
CONTENT
OpenAI ceases API services in China, sparking opportunities for local AI companies amid escalating US-China tech tensions.
On July 9, 2024, OpenAI will cease providing API services to China and other regions, including Hong Kong. This abrupt decision is a significant blow to Chinese startups that heavily rely on OpenAI’s API for product development, now forcing them to seek alternative solutions.
According to Bloomberg and South China Morning Post, this move aligns with the US’s increased tech sanctions on China. Recently, the US Treasury Department proposed regulations on American investments in Chinese sectors like semiconductors, AI, quantum computing, and microelectronics, citing national security concerns. These regulations necessitate notifying or prohibiting future investments in these sectors.
Securities Times, a Chinese media outlet, speculates that OpenAI’s decision might be linked to the recent addition of NSA Director Paul M. Nakasone to OpenAI’s board and security committee. Xiaohu (Neil) Zhu, founder and chief scientist of University AI, which provides training for Chinese enterprises, attributes this to the ongoing US-China tech rivalry. The previous US restrictions on Chinese access to semiconductor and AI technologies hinted at this development, making OpenAI’s API suspension less surprising.
Singapore-based Dorje AI emphasizes the need to watch if other open-source large language models (LLMs), like Meta Llama, will also restrict access for Chinese developers. In July 2023, China introduced interim measures for managing generative AI services, requiring regulatory approval before selling consumer-oriented generative AI LLMs in China to control public opinion and social mobilization.
By March 2024, over 200 domestic LLMs had applied for approval, with 117 receiving it from Chinese authorities, excluding all foreign products. Consequently, ChatGPT remains inaccessible in China. For Chinese developers, starting from scratch with limited funds, OpenAI’s technology is essential for training AI systems and building applications, integrating its API into their products for sale.
In China, developers use OpenAI’s API through two main methods: purchasing Microsoft’s Azure cloud services or using overseas servers to relay requests, though the latter suffers from stability issues and requires additional servers. For OpenAI, losing the Chinese market translates to a loss in API access revenue, charged based on token consumption.
Chinese internet company Qihoo 360 suggests that OpenAI’s exit will drive users towards local models, accelerating the growth of China’s LLM industry. The Center for Regulation and Global Governance at the Chinese University of Hong Kong (Shenzhen) indicates that leading Chinese LLM providers will benefit, helping eliminate small, inefficient players.
Companies like Zhipu, Tencent, Baidu, Alibaba, Kai-Fu Lee’s 01.AI, SenseTime, and Baichuan are capitalizing on this opportunity with “migration” plans and model discount schemes. Zhipu has announced a special migration plan, offering training, consulting services, and tokens equivalent to what developers used with OpenAI. Baichuan Intelligence claims that migrating from OpenAI to their platform will take only five minutes. According to iiMedia Research, the quick response from Chinese AI firms reflects the increasingly fierce competition in the local industry.
Since ChatGPT’s debut at the end of 2022, Chinese companies have launched several LLMs amid the AI boom. Dorje AI notes that OpenAI’s move might eliminate many small AI startups that emerged during the frenzy.
In the long run, lacking access to global tools will hinder the development of Chinese AI companies. Alibaba has stated that Chinese AI models will need at least two years to catch up with the US. Furthermore, Chinese tech companies and startups might relocate overseas for a more stable and growth-friendly business environment.
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