Cover Story: Alibaba Fights Tencent for Dominance Over AI in China

DeepSeek’s surprise entry triggers Chinese arms race for artificial intelligence

The world watched in February as a new name surged onto the global AI stage: DeepSeek. The Chinese startup, practically unknown weeks earlier, suddenly found itself the talk of Silicon Valley and Zhongguancun alike — and its 34-year-old founder, Liang Wenfeng, seated beside Tencent’s Pony Ma and Alibaba’s Jack Ma at a high-level private sector entrepreneurs’ roundtable with Chinese President Xi Jinping in Beijing.

For a moment, DeepSeek seemed to upend the entire power structure of China’s internet economy. But China’s longtime digital giants—Alibaba and Tencent—weren’t just watching from the sidelines. They were recalibrating, reorganizing, and now, reentering the AI arms race with billions of dollars and renewed urgency.

Just four days before the meeting, Tencent had integrated DeepSeek’s foundational R1 model into its flagship AI chatbot, Yuanbao—marking a rare move of collaboration over competition. A week later,