McKinsey tells China practice to stop advising on Gen AI

Amid ongoing geopolitical tension between the US and China, consulting firm McKinsey & Company has told its business unit in mainland China to stop providing advisory services in generative artificial intelligence, according to a Financial Times (FT) report.

People familiar with the matter told FT the Gen AI services ban was prompted by increasing scrutiny from the US government on American companies operating in sensitive sectors such as AI and quantum computing in China.

Although the US government has not made a formal ban on the provision of AI consulting services in China, it has imposed restrictions on export of advanced chips and US investment in Chinese tech companies.

Sources told FT that McKinsey’s self-imposed restriction on Gen AI consulting could constrain its ability to secure new contracts, since Gen AI now plays a central role in many corporate strategy and IT engagements.

Western professional services firms have been pulling back from China amid geopolitical tensions and a slowing economy. McKinsey, which is headquartered in New York and has approximately 45,000 employees, has reduced its headcount in mainland China, Hong Kong, and Taiwan to 1,000 from 1,500 in 2023.

Meanwhile, Chinese companies have been increasingly turning to cheaper local rivals.

In 2023, the Chinese government began targeting western professional services via an updated espionage law. Chinese police that year arrested several employees of Mintz Group, a US-based due diligence consultancy, and raided the offices of Bain & Company and Capvision.

The consulting firm raids arrived as China butted heads with Biden administration over restrictions on semiconductor-making equipment and tensions over Taiwan.

McKinsey has in the past attracted criticism from US government officials for its consulting work with China, a geopolitical rival. Last year, senior Republican lawmakers called for McKinsey’s ban from federal contracts after a Financial Times report uncovered a think tank led by the consultancy gave policy recommendations to the Chinese central government.