China AI race enters new phase as firms pivot to monetization

According to CNBC's The China Connection newsletter, China's artificial intelligence race has moved from research-led competition into a phase focused on commercial revenue generation. Local firms are increasingly deploying AI in production settings and reporting early signs of revenue growth.

The newsletter highlights examples of companies selling AI tools to small factories, education and healthcare providers, and other verticals where paid contracts are emerging. Some listed and private Chinese firms reported double-digit revenue increases in the first half of 2025 and improvements in profitability metrics, indicating that certain business models are beginning to scale.

On the product side, major domestic players have rolled out next-generation models and agent-capable systems; Alibaba Cloud's February 2026 launch of the Qwen 3.5 family is a concrete example of models designed for longer context windows and cost efficiency, which accelerates enterprise adoption and monetization through cloud subscriptions and API services.

Market implications point to stronger demand for hardware, data-center capacity and cloud services. Analysts including those cited by UBS expect 2026 to be a turning point for agent monetisation in China, as companies convert advanced models into recurring revenue. At the same time, chip shortages, export controls and supply-chain constraints continue to shape cost structures and access to high-performance accelerators.

The development also fits a broader policy picture: Chinese authorities have signaled a push for global cooperation frameworks while doubling down on domestic capabilities and industrial policy. Public initiatives and action plans from Beijing aim to support local AI ecosystems, which can increase the competitive edge of homegrown providers in areas where foreign technology access is constrained.

Looking ahead, market participants expect investors to reward companies that demonstrate clear paths to recurring AI revenues, while regulatory shifts and international tensions will remain key risk factors. If domestic models and infrastructure scale successfully, Chinese firms could convert technological progress into sustainable earnings, reshaping policy and investment priorities across the region.