Five observations about AI in China: a status check

The unprecedented mass experimentation and mass adoption of AI applications will provide meaningful lessons for the whole world to see.

Last year, around Spring Festival, DeepSeek R1 was launched and became the sole topic that the whole nation (and the whole world) fixated on for a while. As China draws close to the Spring Festival this year, the major AI players are all geared up for showtime once again. Under such a context, it’s no wonder that China’s AI industry has been filled with drama in the last few weeks.

First, Alibaba’s Qwen triggered a nationwide frenzy by offering “tea freedom” through a massive milk tea subsidy, sending its Qwen AI app to the top of the charts and creating messes at some milk tea shops as delivery people scrambled for orders.

Not to be outdone, Yuanbao, Tencent’s own AI chatbot, launched a billion-yuan red packet campaign, hoping to recreate the success of WeChat Pay. However, the plot twisted when WeChat, the centerpiece of the Tencent family of products, abruptly restricted the sharing of these promotional links to curb spam and “induced sharing.”

ByteDance’s Seedance 2.0, on the other hand, stunned the whole world by its mesmerizing audio-video co-generation technology, strong character consistency, and director-level scene transition, effectively giving every social media user their own Hollywood-quality production studio.

And Spring Festival has not even started!

At this point, I want to put down some preliminary observations here, if only to make a mental mark for the record amid these rapid, crazy changes that are unfolding at this very moment.

Observation 1: The market rewards the cutting edge, but penalizes the old playbook

If it were a decade ago, Tencent’s Yuanbao red packet campaign would have excited the market. After all, the whole red packet playbook was exactly what ushered WeChat Pay into success a decade ago. However, this time, the campaign has caused much more doubt than excitement. As a result, Tencent’s share price has already dropped more than 15% year-to-date at the time of writing this piece.

Nor is the market very excited about BABA’s milk tea giveaways either. Its stock price has traded sideways despite its Qwen app almost becoming the most actively used AI app in China within an extremely short period of time.

Contrast that with Zhipu AI, believed to be behind Pony Alpha, an open-source coding model that many developers compare to Claude Code in capability. Zhipu also announced its GLM-5 model just now, which sent its shares almost quadrupling only a month after its IPO.

The divergence is striking. In this decade, the old playbook no longer inspires. The market is clearly looking for genuine frontier capability, not user growth engineered by subsidies. Merely having more users, if those users are acquired through incentives rather than through technological excitement, is heavily discounted.

Observation 2: The real market leader is not tradable

It’s also a pity that the company that is arguably leading China’s AI race is not listed.

ByteDance, which has Doubao, currently has the most popular AI chatbot in China and arguably the highest user stickiness. Many users already treat Doubao as a daily companion, almost in the sense portrayed in the film Her. While Qwen may be close in daily active users, much of that still appears subsidy-driven. Doubao’s user base feels more organic and durable, at least at this stage.

At the same time, ByteDance’s Seedance 2.0 has become the global leader in video generation since its recent debut. ByteDance’s trial with AI-native smartphone also inspires imagination. (You can check out a product test of Doubao phone here made by Voice of Context, our partner newsletter.)

Yet ByteDance is not listed. Neither is Huawei, another important AI force.

As a result, even if one believes strongly in the long-term future of Chinese AI, the Hang Seng Tech Index may unfortunately not be the most direct way to express that view at this moment. Core constituents such as Alibaba and Tencent have been weak, and the index has traded sideways.

Observation 3: The great divergence of how AI would impact other industries

As much as there is a domestic divergence in how old and new forces tackle AI, internationally, a significant divergence is emerging in how markets interpret AI’s impact on other industries.

In the US, when Anthropic or Google launched a new model, software and business service stocks sold off sharply. Hundreds of billions in market value could be erased in days. The dominant narrative is that the old industries are at risk of decimation.

In China, sentiment looks different. When major breakthroughs in video generation like SeeDance appear, online literature, film-making, and content platform stocks rally. Even if China’s software sector has not been exceptionally strong, it has not collapsed in the same way as in the West either. And milk tea brands like Guming and Mixue are emerging as the biggest net beneficiaries of Alibaba’s generous subsidies.

Why?

One reason is industry maturity. China’s SaaS industry never truly developed into a large, standardized, high-margin sector comparable to the US. Much of the market remains project-based and customized. Ironically, that lack of maturity could prove resilient in an AI era. Companies built around implementation and consulting may still be needed, while benefiting from lower AI-driven costs.

As for the entertainment industry, China does not yet have a Hollywood-sized creative market to disrupt. When AI improves content creation, investors focus on new possibilities rather than on the elimination of entrenched incumbents.

There may also be a deeper cultural and political layer. In the current Chinese context, it is difficult to imagine technology wiping out an entire industry overnight without at least paying some price. The concept of common prosperity has shaped expectations around these things.

I do not claim to have a definitive explanation here. But this divergence itself is worth watching.

Observation 4: Trust first, commerce later?

The next major milestone in AI, after coding, may be agentic commerce: how AI changes how people transact and live.

Alibaba is positioning itself as the leading global experimenter in this space. As the operator of one of the largest e-commerce ecosystems in the world, it is pushing consumers to shop in an AI-native way earlier than anyone else.

The results so far are mixed, however.

When I tried shopping through Qwen’s agent, the experience proved that AI-mediated shopping is technically feasible. But beyond that proof of concept, it did not feel revolutionary. Which leads me to think that chatting back and forth with a bot to find something to buy may not be the final form of commerce.

By classic internet logic, this is not a problem. “Move fast and break things” has been the motto for the industry since its very beginning. Early user experience can be rough as long as feedback loops are strong and iteration speed is fast.

But it may be too premature to push agentic commerce too aggressively, which leads to a more fundamental question: what do people actually look for when they shop?

For purely utilitarian purchases, such as recurring household goods, automated agents make sense. But much of consumption is not utilitarian. For many high-value purchases, the experience itself is part of the product: walking through a store, browsing shelves, and discovering items serendipitously. I don’t believe these are inefficiencies to be eliminated. For many, shopping is not just a means, but an end in itself.

A better model, intuitively and logically, would be to build trust first.

If users see their AI agents as friends, advisors, or companions, they will naturally ask them for shopping recommendations. Commerce then becomes an extension of trust, not vice versa.

If this theory is true, then agentic commerce does become mainstream, ByteDance, again, may still capture the largest upside. Doubao already has user trust and stickiness. Combined with Douyin’s e-commerce ecosystem, all the essential pieces are in place.

Tencent may also be underestimated. Even if it currently lags in model leadership, it possesses vast behavioral data to eventually build a trustworthy AI virtual assistant as well as a deeply integrated WeChat mini-program commerce ecosystem within to build a complete e-commerce experience.

Alibaba has limited social advantages and does not control the most popular AI companion app right now. It is therefore logical that it plays to its core strength: commerce. Whether that will work is questionable, but it just does not have many alternative strategic choices.

Observation 5: 2026 as the year of mass adoption

The upcoming Spring Festival holiday is shaping up to be another holiday about AI. Chinese AI companies are clearly timing product releases around this period, when users are at home, traveling, and experimenting with new apps.

It is not yet clear who will ultimately win. What is increasingly clear, however, is that 2026 is shaping up to be a year of mass AI adoption in China.

This adoption will go far beyond chatbot novelty. By the end of 2026, it is highly likely that a majority of urban consumers will have completed at least one transaction through an AI agent. Coders will routinely use domestic Chinese coding agents. Video creators will rely on AI-native tools as a standard workflow.

This unprecedented mass experimentation and mass adoption of AI applications, with all of the potential impact and consequences, will provide meaningful lessons for the whole world to see.

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This should be our last post before the Spring Festival commences.

Finally, to all our readers, thank you for staying with us through another turbulent year in markets. May the Year of the Horse bring you momentum, milestones, and more exciting breakthroughs in your work and in your life!