China’s internet giants are betting billions on incubating the country’s OpenAI challengers, with Alibaba Group and Tencent leading the charge. Since 2023, investors—including the country’s biggest tech companies—have valued at least six China-based startups developing large language models at more than $1 billion each. Most of these unicorns, dubbed China’s six “Little Artificial-Intelligence Dragons,” have received capital from Alibaba and Tencent. While both companies have dramatically reduced their overall investments in the past two years, their interest in AI has intensified. Since 2023, 40% of Alibaba’s deals in China and 30% of Tencent’s have targeted AI startups—both record highs for the two tech titans, according to Beijing-based deal data provider ITJuzi. Alibaba and Tencent are “positioning themselves as frontrunners in the generative AI space,” said Wei Sun, senior analyst at market research firm Counterpoint Research. “Investment in AI startups is a strategic effort to strengthen their technological edge and expand market influence.” Chinese tech giants, once known for their aggressive dealmaking, have shifted focus to making profits in recent years after being hamstrung by Beijing’s regulatory clampdown on the sector, the Covid-19 pandemic and a faltering Chinese economy. Generative AI has emerged as a rare exception to their newfound conservatism. Alibaba and Tencent have made AI a strategic priority, seeking to cash in on the technology, develop their own foundation AI models, and sell access to both those and AI computing power via cloud services. At the same time, China’s AI-model arena is getting increasingly crowded, with more than 190 products now on the market, raising fears among some companies that they are falling behind. By investing in AI unicorns, companies hope to get firsthand insight into research and development, plus access models that could bolster their product offerings and business practices, solidifying their edge in the industry.
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