Opinion | Why the real AI race is within China and not across the Pacific

For much of the global debate, the race for artificial intelligence (AI) supremacy has been framed as a binary contest between the United States and China. As Washington envisions it, victory hinges on frontier models and compute scale, a battle dominated by a handful of American labs. China is cast as the challenger, constrained by export controls and dependent on catching up.

The first camp is the compute maximalists, with Alibaba and ByteDance at the forefront. Their wager is that scale and performance still matter most. Alibaba has spent heavily on cloud and AI infrastructure in the past year, pushing free cash flow to negative 21.8 billion yuan (US$3.1 billion), even as cloud revenue grew 34 per cent. Management now claims more than 35 per cent of China’s AI cloud market, and its Qwen model family has spawned more than 180,000 derivative open-source models.

ByteDance is the consumer-first version of this strategy. Its core products run on some of the most sophisticated recommendation systems in the world. To power these engines, ByteDance trains large proprietary models and integrates generative tools that shape everything from automated video editing to personalised feeds.

It is the only Chinese firm whose applied AI already operates at an international scale. This exposure pushes it to invest even more aggressively in performance despite a complex geopolitical environment.

A second camp is represented by Tencent, whose latest earnings reveal a markedly different centre of gravity. While peers raised capital expenditure, Tencent’s spending fell 24 per cent year on year to 13 billion yuan, even as revenue grew 15 per cent and net profit rose 19 per cent. AI has been woven into Tencent’s mature businesses rather than used to pursue frontier training. Marketing services revenue grew 21 per cent, while fintech and enterprise services rose 10 per cent, supported by AI-enhanced tools.