As OpenAI threatens to block access to APIs in China, local players eye the AI industry pie. We explain

With ChatGPT creator OpenAI threatening to block access to developers in China, to its tools and software from July, local players are eyeing the lead in case of a vacuum.

Earlier this week, Sam Altman-run OpenAI warned developers residing in countries where the company does not offer its services that the block is impending, Bloomberg reported, citing local media. Local media, such as the Securities Times, reported the ban plan based on social media posts about the memos.

The report added that Chinese players did not waste time encouraging developers working on artificial intelligence (AI) projects to switch products. Companies, including conglomerates such as Alibaba Group and Tencent Holdings, posted notices to attract developers.

“We are taking additional steps to block API traffic from regions where we do not support access to OpenAI's services,” an OpenAI spokesperson told Reuters.

Local Players Vie For Pie

Chinese AI players that have risen to the opportunity include Alibaba Group, Baidu Inc., and Tencent Holdings' Zhipu AI, all of whom have offered incentives for developers choosing to join their platform. Many see an industry “shake-up” ahead and are looking to grab a slice of the pie that is currently monopolised by OpenAI.

On the flip side, some may be at a disadvantage, too. Boot-strapped start-ups and small entrepreneurs will lose access to some of the world's best tools to kick-start their AI apps. Bernard Leong, CEO of Singapore-based Dorje AI and founder of the tech podcast Analyse Asia, told Bloomberg that the coming bloodbath may only see big players survive.

“There’s probably going to be a bloodbath of the large language models, and I suspect there will probably be very few players left. There will be very few winners, and those will be the biggest in China,” Leong said.

You Chuanman, head of the Chinese University of Hong Kong-Shenzhen’s IIA Centre for Regulation and Global Governance, echoed the sentiment.

“Leading Chinese large language models can benefit from restricted access to OpenAI, which will help filter out smaller, less effective players from the market. At the same time, it will make it harder for Chinese developers to use the most advanced global AI algorithms,” he told Bloomberg.

Who's Doing What To Take OpenAI's Spot?

• In its message to developers looking for alternatives to OpenAI, Baidu announced free user migration, free AI model fine-tuning, and expert guidance on its flagship Ernie model. Migrating users will also be given 50 million free tokens to query the Ernie 3.5 flagship bot.
• Alibaba posted ads encouraging developers to join. Alibaba Cloud offered free tokens and migration services for OpenAI API users. It also advertised a “significantly lower priced” Qwen-plus model as an alternative to GPT-4.
• Tencent also posted ads encouraging developers to move to its AI platforms.
• Separately, Alibaba and Tencent-backed Baichuan offered 10 million free tokens.
• Kai-fu Lee’s 01.AI said it would give “heavy discounts”.
• SenseTime Group Inc. tried to lure developers with 50 million free tokens.
• Zhipu provided 150 million tokens and a series of training sessions for migrating developers through a “Special Migration Program.” It also advised its GLM model as “fully benchmarked against OpenAI's product ecosystem.”
• Microsoft Corp. pushed step-by-step notice on how users can migrate to its local service, 21Vianet. This isdespite being among OpenAI’s biggest backers.

US Govt Hand in Decision?

Due to its success with ChatGPT, Microsoft-based OpenAI is considered the industry standard for AI developers. Developers use Alphabet, OpenAI, and Meta's application programming interfaces (APIs) or pre-made communication contracts to base or refine their own products for integration with ChatGPT, Llama, and others.

Reuters report said that Chinese developers have been using VPNs to access APIs. However, this may not be possible from July 9.

While the reason for the memo was unclear, reports speculated that pressure from the United States government on chipmakers and other tech companies to limit access to China played a part in the decision.

Neil Zhu Xiaohu, the founder and chief scientist of University AI, which trains Chinese companies, told Bloomberg the move is “directly related to the ongoing competition between China and the US in frontier technologies”.

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

(With inputs from Bloomberg and Reuters)