Chinese consumers love AI smartphones but Apple faces localisation challenges, report says

Chinese consumers show the strongest interest globally in smartphones with artificial intelligence (AI) capabilities, but foreign handset makers such as Apple will face localisation challenges in the market due to regulatory requirements, according to a new report.

According to a report published by market research firm Canalys on Friday, 43 per cent of consumers in China - the world's largest smartphone market - expressed high to very high interest in AI smartphones, a greater percentage than in India and the US, the second and third biggest global smartphone market, respectively.

The report found that 71 per cent of Chinese consumers were willing to pay extra for AI features, which offered brands a good foundation for establishing a business model and achieving profitability, Canalys wrote.

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The Chinese market, however, also presents challenges to global AI smartphone makers thanks in part to local regulations for large language models and data sovereignty, the firm noted.

"All AI-capable smartphones shipping in mainland China's market are likely to be mandated to use one of the commercial LLMs approved by the government," the Canalys report said.

Apple, for instance, may not be able to offer its virtual assistant Siri in China using ChatGPT, the popular chatbot launched by US start-up OpenAI in 2022, according to Canalys. Apple announced earlier this month that it is partnering with OpenAI, which will make its chatbot available for free on several Apple platforms later this year.

The Canalys report found that 71 per cent of Chinese consumers were willing to pay extra for AI features. Photo: Shutterstock Images alt=The Canalys report found that 71 per cent of Chinese consumers were willing to pay extra for AI features. Photo: Shutterstock Images>

Instead, Apple is likely to adopt domestic large language models - the technology behind generative AI services like ChatGPT - that are approved by the Chinese government, such as Alibaba Group Holding's Tongyi Qianwen or Baidu's Ernie, Canalys said. Alibaba owns the South China Morning Post.

Apple may also need to set up local servers in China for mainland Chinese user data as part of its Private Cloud Compute system, which was launched earlier this month for private AI processing, Canalys said.

Apple's plans to add AI capabilities to its iPhones have received mixed reactions in China, where consumers are unsure about when such features will be available locally, and as cheaper handsets from Chinese brands have been aggressive in integrating AI.

Chinese smartphone makers including Honor, Oppo, Vivo and Xiaomi have all started to introduce AI features since last year, Canalys said.

Huawei Technologies, on the other hand, has been "keeping a relatively low profile" in its generative AI investments, despite being one of the earliest smartphone vendors to use AI chips for tasks such as image optimisation, according to the research firm.

Huawei, similar to Apple and Google, has the advantage of being what it calls a "full stack player", with solutions spanning software, cloud infrastructure and end user devices, it said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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