The Chinese AI war will “intensify across the board” in 2026: “Traffic gateways” have become a battleground for major companies, and AI going global will also accelerate.

The Chinese AI war will “intensify across the board” in 2026: “Traffic gateways” have become a battleground for major companies, and AI going global will also accelerate.

In 2025, China’s internet sector led the world with an astonishing 36.5% return, but the real story will fully unfold around artificial intelligence in 2026.

According to Windchaser Trading Desk, Citi stated in its December 1 report, “China Internet 2026 Outlook,” that competition in China’s AI sector in 2026 will revolve around three main themes: AI cloud infrastructure, AI chatbots, and AI applications. The report believes that major players such as Alibaba, ByteDance, and Tencent are racing to seize user traffic through their AI chatbots, aiming to secure the crucial gateway for commercialization of future ecosystems in the AI era.

Analysts Alicia Yap and others emphasized that this “user traffic turf war” will be key for Chinese internet giants in 2026. Alibaba and Tencent are seen as core AI investment targets, while ByteDance, leveraging the rapid global expansion of its AI applications, has become an unignorable disruptive force, with its AI chatbot’s global monthly active users (MAU) now ranking third worldwide.

Meanwhile, the productivity boost brought by AI will unleash more demand for leisure and entertainment, benefiting industries with stable profitability such as gaming and tourism. Citi believes that due to geopolitical risks and AI supply chain constraints, the valuations of Chinese internet companies may continue to lag behind global peers.

2026 AI Race: Three Major Themes in Full Swing

The report predicts that competition in China’s AI sector in 2026 will be fierce, focused on three main areas. This is not only a technological battle, but also a fight for dominance in the future commercial ecosystem.

The Capital Race for AI Cloud Infrastructure: Giants spearheaded by Alibaba and Baidu are making large-scale capital investments. According to the report, in the past four quarters, Alibaba’s capital expenditure in AI and cloud infrastructure reached approximately RMB 120 billion, with plans to invest RMB 380 billion over the next three years. Its cloud business revenue grew 34% year-over-year in the September 2025 quarter. Baidu AI Cloud revenue also saw a 21% YoY increase in Q3 2025, reaching RMB 6.2 billion. This “arms race” aims to provide the computing power foundation for the impending explosion of AI applications.

The Battle for AI Chatbot “Traffic Portals”: The report defines AI chatbots as the “traffic portal” of the AI era, the essential arena for monetizing future internet ecosystems. Alibaba (“Tongyi Qianwen”), ByteDance (“Doubao”), and Tencent (“Hunyuan”/“Yuanbao”) are throwing their weight into the fight for users. Data shows ByteDance’s “Doubao” is leading in the Chinese market, with monthly active users (MAU) reaching 197 million as of October 2025.

Penetration of AI Agents in Vertical Fields: Companies in verticals such as Meituan, Trip.com, and Didi are using proprietary data to train their own AI agents. The aim is to avoid being disrupted by general-purpose AI, while enhancing user stickiness and exploring new monetization possibilities through AI. For example, Trip.com's AI travel assistant “TripGenie” saw the number of related users grow more than 200% year-over-year in the first half of 2025.

Acceleration of AI Going Global: ByteDance Rises to Global Top 3

While competition is heating up in the domestic market, Chinese AI applications are accelerating their global reach and have achieved breakthroughs in some markets. Citi’s report highlights the rising global penetration of Chinese AI chat applications.

According to SensorTower data as of November 2025, ChatGPT leads globally with 800 million MAU, followed by Google’s Gemini with 335 million MAU. Notably, ByteDance’s Dola and another Chinese company DeepSeek rank fourth and fifth worldwide with 47 million and 39 million MAU, respectively.

Citi analysts point out that if Dola’s overseas users (47 million) are combined with “Doubao”’s Chinese users (197 million), ByteDance’s AI chat products would reach a total MAU of about 250 million, putting it third globally. The report calls this an “important milestone,” showing that Chinese AI applications have significant potential for rapid growth globally, especially in emerging markets such as Latin America and Southeast Asia.

Performance Review and Outlook: AI Enhances Productivity, Benefits Gaming and Tourism

The report reviews Q3 2025 performance: among the 44 internet companies surveyed, 27 surpassed profit expectations, while only 18 exceeded revenue forecasts. The report attributes this mainly to ongoing cost optimization and “potential savings or productivity enhancements brought by AI.”

Looking ahead, the proliferation of AI tools will boost efficiency in both work and life for consumers, freeing up more time and consumption capacity for leisure and entertainment. On this basis, the report is bullish on two major sectors:

Gaming Industry: This sector not only benefits from the development efficiency improvements brought by AI (such as art design and content generation), but also continues to be favored for its robust profitability. Data shows that the monthly ARPU (average revenue per user) among Chinese gamers rebounded to RMB 41 in H1 2025, up 13.3% year-over-year. Innovative use of AI NPCs (non-player characters) in games like NetEase’s “Justice Mobile” has attracted significant attention from overseas players.Tourism Industry: The report states Chinese tourism demand remains resilient. In 2024, tourism spending accounted for 4.3% of GDP, still below the 5.7% level pre-pandemic in 2019, indicating further growth potential. International flight passenger volume had recovered to pre-pandemic levels by Q3 2025.

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