China's AI laggard could soon be its leader

Z.AI

19/08/2026 05:39

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Robyn Mak
HONG KONG, Aug 19 (Reuters Breakingviews) - If cash is king, expect a shakeup of China's AI leaderboard. Z.AI 2513.HK boasts some of the world's most competitive open-weight models, but the $62 billion loss-making upstart depends on the whims of the country's capital markets for funding. Larger rivals like Alibaba 9988.HK can lean on e-commerce and cloud profits to further their AI ambitions, while Tencent's 0700.HK gaming and advertising cash machine gives it a strong chance to catch up. 
While Z.AI's latest GLM-5.3 model can nearly match Anthropic's restricted Mythos 5 in cyber-defence capabilities, training the next frontier AI model has become ever more pricey. Research firm Epoch AI estimated that frontier-model training costs are now increasing 3.5-fold annually; that implies the most advanced training runs may soon exceed $1 billion by 2027.
AI labs will have to keep investing in chips and talent just to stay in the race. And even then, there's no guarantee that would translate into a durable advantage. Search engine operator Baidu's 9888.HK once-leading Ernie model, for example, has fallen behind, prompting CEO Robin Li on Tuesday to vow to return it to the frontier.
Expenses are already running higher than expected. Eddie Wu, boss of Qwen-owner Alibaba, in May warned that the company would probably "overshoot" its three-year capital expenditure guidance of 380 billion yuan ($56 billion). In the three months to June alone, Tencent splashed out nearly $8 billion in capital expenditures, mostly on computing power.
Of the duo, Tencent's core businesses look most robust. Its domestic video games and advertising units saw sales grow 17% and 22% year-on-year, respectively, in the recent quarter. Meanwhile, Alibaba is forecast to report a 2.7% fall in revenue for its China commerce division when it reports June-quarter earnings this week, per Visible Alpha, though that business still accounts for roughly 40% of its total top line.
Wu is at least making things easier for Alibaba by selling off non-core assets, including a deal this month to sell its video-game developer, Lingxi Games, to Trustar Capital at a valuation of more than $2 billion. Pure-play labs have no such luxury: Z.AI ploughed more than 3 billion yuan into R&D last year despite generating just 724 million yuan in sales and has had to sell shares. Looking across balance sheets, China's AI laggard could soon be its leader.  
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CONTEXT NEWS
Alibaba agreed to sell video game developer Lingxi Games to private equity firm Trustar Capital, Reuters reported on August 17, citing a person familiar with the matter. The transaction for the studio behind the hit title "Three Kingdoms: Strategy Edition" may yield proceeds of more than $2 billion, the report added. Alibaba will report June quarter results on August 20.
Separately, Baidu CEO Robin Li vowed on August 18 to bring the company's Ernie large language model back to the frontier after the company reported a 19% annual decline in online marketing services revenue in the quarter ending June. "In a market like this, we believe long-term competitiveness ultimately comes down to sustained technology investment, application-driven approach, and patience," Li told analysts, adding that Baidu would keep investing in top talent and technology to regain its edge.

(Editing by Una Galani; Production by Ujjaini Dutta)
((For previous columns by the author, Reuters customers can click on MAK/  robyn.mak@thomsonreuters.com))