Chinese tech giants Tencent and Alibaba cited artificial intelligence as a transformative technology on corporate earnings calls this week.

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China’s tech giants are banking on artificial intelligence to boost their businesses, unveiling new features for their existing services as well as new generative AI tools as hype around the technology reaches dizzying heights.

Alibaba, Tencent and Baiducollectively known as “BAT,” all promised generative AI — a subset of artificial intelligence that deals with tools that can dream up text, images and other content in response to user messages — on the company’s earnings call this month.

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Modeled on ChatGPT, the popular Microsoft-backed AI chatbot that has become known for its ability to hold more human-like conversations, such systems have attracted strong interest from investors and hot competition among companies looking to incorporate the technology or develop their own alternatives.

In the case of the Chinese companies, generative AI tools are expected to be more restrictive about what users can or cannot say because of Beijing’s tight grip on internet services in the country.

However, the Chinese government has not chosen to kill ChatGPT-like products, even though ChatGPT itself is still unavailable in the country. Instead, Beijing introduced new rules to manage how companies develop such tools.

China’s tech giants have been quick to use the more open approach to new technological innovations – a stark contrast to its approach to cryptocurrencies – to their advantage.

‘Paradigm shift’

China’s tech giants last week outlined their belief that they see generative AI as a technological revolution. “Generative AI represents a huge opportunity for us. It’s comparable to the introduction of the Internet and smartphones,” Robin Li, Baidu’s CEO, said on the company’s first-quarter earnings call.

Hard to see how China can win AI competition if chip bans keep happening: Grow Investment's Hong

“To capture this opportunity, we leveraged our technical capabilities and our extensive experience in search, knowledge graphs and dialogue,” he added.

Baidu said it was awaiting regulatory approval for its Ernie Bot chatbot service, a rival to OpenAI’s ChatGPT.

On Wednesday, Tencent confirmed the existence of a so-called basic model it is working on, called HunyuanAide. Basic models are large AI programs that are trained on large amounts of data so that they can be adapted to solve a wide range of tasks.

Meanwhile, Tencent president Martin Lau said the company is “making good progress” with the technology. “I think a key strength for us is obviously the use cases,” Lau said on the company’s first-quarter earnings call. “We have different products (and) teams that are already planning some interesting offers along with … their products.”

Alibaba, which developed its own ChatGPT-style generative AI tool Tongyi Qianwen earlier this year, said its system could help accelerate customer adoption of its cloud service. So far, Alibaba has seen strong demand for Tongyi Qianwen, with 200,000 enterprise customers applying for trial access.

“The development of AI technology presents a huge new opportunity for the cloud business as applications of artificial intelligence will result in an exponential increase in demand for computing power,” said Daniel Zhang, the company’s CEO, on its fiscal fourth-quarter earnings call.

“This kind of computing power has to be provided as a kind of public service or infrastructure. So this is a huge opportunity for us going forward.”

Zhang’s comment came as Alibaba announced its plans spin of its cloud computing device as a separately listed entity.

The tech giants’ AI ambitions reflect an escalating global arms race now underway as countries seek leadership over the technology. Microsoft and Googletwo of the biggest tech companies, currently dominate the AI ​​conversation with their respective advanced language processing technologies.

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Dan Ives, managing director of equities at Wedbush Securities, told CNBC that generative AI is seen as a “paradigm shift” in the tech industry. China, specifically, “has some of the most advanced AI technologies in the world,” he added.

“We believe this is a Game of Thrones also playing out in the China Tech market because the gloves are on for this fight,” Ives said.

“The Big Tech stalwarts like Alibaba, Tencent and Baidu among others are trying to put an iron fence around their installed base on AI. Many innovative vendors are going after this market and China’s technology is now in the middle of a secular shift around AI.”

The comments from some of China’s top tech companies last week hint at how Beijing is trying to step up its rivalry with the US over AI.

However, there have been concerns that a US ban on Chinese companies buying advanced chips and chip-making equipment could hamper China’s AI progress. Alibaba, Baidu and Tencent do not produce their own chips, instead relying on chipmakers such as Nvidia to get the processors needed for their cloud computing operations. This makes them vulnerable to US sanctions

Over the weekend, China banned its domestic companies from buying equipment from the US chipmaker Micron in retaliation to the US sanctions.

“I think, going forward, obviously AI requires a lot of computing power, so as a result, it’s hard to see how China can succeed in winning this competition if it just continues to have this crucial technology banned from its AI industry,” Hao Hong, chief economist of Grow Investment Group, told CNBC’s “Squawk on the Street” on Monday.

For its part, Tencent said that chips are still “largely available” at the moment and that there are “some workarounds” that will allow it to continue to maintain access to graphics processing units in China. These GPUs are used to power AI applications.

AI with limits

One thing that was clear from the Chinese tech giants’ earnings statements and calls last week was that they are aware of — and keen to follow — an impending regulatory tightening of AI.

Could China's ChatGPT clones give it an edge over the US in an AI arms race?