China's AI race is heating up. Can Tencent hold its ground?

SHANGHAI/BEIJING: Like many people in China, Gu Jiu rarely goes a day without using WeChat.

The Shanghai resident checks his unread messages and catches up on friends' posts on the app before leaving home.

He uses WeChat Pay to buy his morning coffee and, while sitting at a cafe, browses tennis courts, compares prices and makes a booking without switching to another app.

"Your WeChat account can be linked to almost any platform, so you don’t need to keep track of lots of different accounts and passwords. You can just link them all through WeChat," he told CNA.

"For many of us, WeChat isn’t just part of our personal lives. We use it for work too … Without WeChat, things would be quite a bit more troublesome."

In China, WeChat is used for a wide range of everyday activities, from messaging and shopping to paying bills and accessing government services.

Launched in 2011, it had more than 1.4 billion monthly active users across its Chinese and international versions at the end of the first quarter of 2026.

But the rise of artificial intelligence is challenging the dominance of established internet platforms like it.

For Tencent, the Chinese internet giant behind WeChat, the question is whether it can adapt quickly enough as AI changes how people use technology.

A NEW BATTLE FOR TECH DOMINANCE IN CHINA

For much of 2026, Tencent has faced questions about whether it is falling behind in China's AI race. The company has already lost ground in short-form videos, and its AI chatbot Yuanbao trails competitors including ByteDance's Doubao.

According to analytics firm QuestMobile, Doubao had 382 million monthly active users in June, compared with about 50 million for Yuanbao.

"The Chinese AI industry is super competitive because it's highly fragmented," said Rui Ma, founder of Tech Buzz China, a platform that provides analysis and commentary on China's technology industry.

She highlighted the large number of companies competing in China's AI market, in contrast to what she described as an almost duopoly between OpenAI and Anthropic in the United States.

Independent tech analyst Pei Pei said the emergence of AI companies was changing the competitive landscape, which had previously been dominated by China's major internet giants.

"There used to be a narrative centred on Tencent, Alibaba and Baidu. Then it became a Tencent-versus-ByteDance story. But that narrative has only lasted five years or so. Now, it’s shifting again to a story of traditional tech versus AI," he noted.

Pei cited the rapid rise of AI developer Zhipu. The Hong Kong-listed company briefly surpassed HK$1 trillion (US$128 billion) in market value in June.

“Increasingly, the competition could be between traditional tech giants that fail to keep up with the AI trend, those that successfully embrace it and a new generation of AI startups,” he added.

One concern is that AI could eventually take over some of the roles played by platforms such as WeChat and Douyin – ByteDance's short-video app and the Chinese counterpart of TikTok – while also enabling new industries to emerge and expand rapidly.

Investor concerns over Tencent's AI strategy have also weighed on its Hong Kong-listed shares. But while rivals have moved aggressively into AI, Tencent has been more measured, raising questions about whether it can keep pace.

WHY TENCENT IS MOVING MORE CAUTIOUSLY

Tencent's response to AI contrasts with the more aggressive approach associated with competitors including Alibaba and ByteDance.

Former Tencent project manager Iris Jiang, who previously worked at Baidu and ByteDance, spent more than five years at the Shenzhen-based company.

She described Tencent as generally having a less cut-throat work culture than some of its rivals, although pressure varied between teams and over time.

One of her strongest memories was of annual messages from Zhang Xiaolong, the executive who led the development of WeChat.

“One point he made that really stayed with me was that if everyone is already heading down the same path, you should stop and ask yourself whether it is actually the right path to take,” she recounted.

Pei said the contrast between Tencent and ByteDance was apparent in their management styles.

ByteDance founder Zhang Yiming and long-time executive Zhang Lidong were willing to commit substantial resources early when they identified an opportunity, he said.

Tencent's leaders, including co-founder and CEO Pony Ma and President Martin Lau, were more reserved and deliberate.

Independent tech analyst Chen Zemin also pointed to Tencent's emphasis on caution and user value.

“In terms of corporate culture, Tencent embraces the idea of ‘Tech for Good’ and says that everything it does should be guided by user value. We can see that Tencent's products are relatively understated and steady,” he added.

There are also practical reasons for this approach.

Tech Buzz China’s Ma said Tencent's services are deeply embedded in users' personal lives and business activities, meaning mistakes when introducing new features could have serious consequences.

"To make it work at that kind of scale without any negative experiences for the billion-plus users is actually exceedingly difficult. And, may I add, very expensive," she said.

WECHAT GIVES TENCENT AN AI EDGE

Despite concerns about Tencent's pace, analysts say WeChat gives the company an opportunity that few rivals can match.

Ma highlighted the platform's roughly 4 million mini programmes, which connect users to a range of services. She said these could become particularly valuable if AI agents were able to interact with them on behalf of users.

"Imagine if all that became callable by AI agents. It's just a totally different experience of going online once that is unlocked," she said.

Tencent has begun introducing AI into WeChat through Xiaowei, an assistant launched in June.

But its introduction has raised privacy concerns.

Ma said Tencent would need to exercise caution because WeChat handles sensitive personal information, including payment details, identity information and private conversations.

She noted that generative AI can produce unpredictable results, making it challenging to introduce into a platform that handles so many aspects of users' lives.

"They really need to figure out how to protect user privacy, as well as deliver the best … personal productivity experience and save users time," she said.

Beyond WeChat, Tencent is also competing to bring AI into the workplace.

An enterprise version of its WorkBuddy AI agent, launched in June, has generated interest among investors and industry observers.

Competitor ByteDance has responded with Doubao Work, while Baidu has attracted attention with its own workplace AI agent, DuMate.

Ma said the competition could be significant because China's major technology companies already have established user bases and integrated workplace productivity platforms.

"So, you kind of win one, and you win all. So, this is a very important, potentially existential fight for these platforms, and they're going to be competing vigorously," she added.

Tech analyst Chen said that for now, Doubao still enjoys a substantial lead in reach and influence.

“But it’s hard to say what will happen further down the road. I still think Tencent has enormous potential,” he added.

"WeChat already has a huge and highly engaged user base, and (AI assistant) Xiaowei can build on that."

CAN TENCENT PROTECT ITS BIGGEST GAMING HITS?

While WeChat is central to Tencent's future in AI, gaming remains one of its most important sources of revenue.

For 20-year-old Liang Ce, the appeal of Tencent's Honor of Kings, a multiplayer mobile battle game, has endured for a decade.

"I started playing when I was in Primary 4. This game has basically been with me for more than half my life," he said.

Liang recalled discovering mobile gaming at a time when playing computer games at internet cafes was relatively expensive.

The appeal of Honor of Kings was partly its accessibility.

“Sometimes we’d go to a drink shop, and there would be a bunch of people gaming there. You didn’t even have to look for people to play with. You could just join in,” he said.

The game is free to download and play, with Tencent earning revenue through optional purchases such as character skins, battle passes and other virtual items.

“With all the different purchases over the years, I’ve probably spent tens of thousands of yuan,” Liang said.

His experience reflects the loyalty Tencent has built among players.

By 2025, Honor of Kings had more than 260 million monthly players worldwide.

Tencent's gaming revenue has also more than quadrupled in the decade since the game's launch, rising from about 57 billion yuan (US$8.6 billion) to nearly 242 billion yuan.

Analysts say Tencent has sustained its games by protecting the player experience through proactively responding to player feedback on new features and making adjustments accordingly.

Tech analyst Pei said this was particularly difficult for established multiplayer games, where experienced players often have a substantial advantage over beginners.

"Honor of Kings is now in its 11th year. Normally, with any online game that’s been around for more than a decade, there’s hardly any experience left for newcomers. But Honor of Kings still attracts new players every month," he said.

Gaming now accounts for about a third of Tencent's revenue.

In 2021, Beijing limited online gaming for under-18s to one hour on Fridays, weekends and public holidays, as part of efforts to curb gaming addiction. 

Tencent has since expanded its international gaming portfolio, helping offset the impact of tighter restrictions at home. In 2025, its international gaming revenue exceeded US$10 billion for the first time.

AI COULD TRANSFORM GAMING, BUT WILL PLAYERS EMBRACE IT?

Artificial intelligence is also being used to develop virtual teammates that can play alongside human users.

Pei highlighted AI teammate features in Peacekeeper Elite, a multiplayer shooting game, and similar developments in Honor of Kings.

He said such features could be useful for people who struggle to find friends to join them in multiplayer games.

AI teammates could be matched to a player's skill level and play alongside them as part of a team, potentially offering an alternative to third-party paid gaming companions.

Ma sees a broader opportunity in personalised AI-generated game content.

"I think right now what we're seeing is just the beginning of content generation for gaming, and people using it to generate assets," she said.

She hopes future games will be able to generate entire storylines in real time, allowing players to experience worlds tailored to their choices.

But Pei warned that greater unpredictability might not necessarily appeal to players.

He said game developers he spoke to were sceptical about allowing AI to control characters or determine storylines because players generally preferred a more predictable experience.

"If you wanted uncertainty, what would you do? You’d go live your real life," he said.

Pei added that investors may expect AI to deliver breakthroughs that are not yet realistic.

"The kind of AI investors want is one that can actually create a game like Honor of Kings. But how is AI supposed to do that?" he asked.

"So, I think there’s a disconnect between what the capital markets expect from AI and what companies can realistically do with it."

Source: CNA/mp(dn)