McKinsey limits genAI work in China; Amazon shuts Shanghai AI lab

Both Amazon and McKinsey appear to be pulling back from AI work in China, reports on Wednesday suggested – even as many companies look to places such as India for scarce AI skills.

The FT said one person familiar with the issue had confirmed McKinsey's China arm had been instructed to avoid projects involving the deployment of genAI because of US government concerns. The US defence department is a key McKinsey customer. 

McKinsey did not immediately address the report directly, but said it continues to "evolve and strengthen" its client selection.

On the same day, the FT reported that Amazon was shutting down an AWS research lab in Shanghai. 

AWS has confirmed it is cutting jobs amid its AI pivot, though it has not confirmed the number or location of employees affected. But the seven-year-old AI lab was closing because of US-China tensions, one scientist employed there said on WeChat.

Isolating China

Donald Trump and his administration have made it clear that American companies should consider China a competitor that must be outpaced in AI development.

“What we want to do is, we want to keep it in this country,” Trump said about AI shortly after taking office.

The UK has also increasingly prioritised sovereignty through access to model data and local compute in its AI policy, with the EU and its constituent countries taking a similar approach.

In May last year, the Wall Street Journal reported that Microsoft had offered Chinese engineers working on cloud and AI services the opportunity to relocate to the USA. 

Going to India

Last August, IBM shut down two research labs in China, with some of that work shifting to India.

Multinationals outside of the tech space have proven increasingly keen to tap into India, seen as relatively geopolitically neutral while offering depth of talent, for labelling and other back-office AI services.

The strategy of trying to withhold Western AI developments from China has not been universally popular. In May, NVIDIA's Jensen Huang warned that the US risked its global position as an infrastructure leader by seeking to withhold chips from China on the “clearly wrong” assumption that China could not make those chips itself.

See also: NVIDIA's Huang comes out swinging on US' China export controls

AI and cloud sovereignty have also been on the minds of governments in the context of a change in relationship status with the US. 

In June, AWS said it was on track to launch a service where all elements, from operational control to certificates, would be local to EU countries.

In May, Microsoft said it had heard European governments' concerns and would offer "sovereign cloud datacenters".

"We will always strive to be a voice of reason that promotes mutual opportunities and stable ties across the Atlantic," said vice chair Brad Smith.