With billions of yuan in digital cash giveaways, Alibaba, Tencent and ByteDance are launching a fresh subsidy war for Lunar New Year – even as Beijing has spent months insisting it wants to curb destructive price wars.
At the start of the Lunar New Year holiday, China’s major tech groups have kicked off another round of aggressive competition. The holiday period is a prime moment to accelerate adoption of generative AI chatbots: Usage of digital services typically rises sharply, with hundreds of millions off work, spending more time on their phones, and exchanging cash gifts – digital hongbao – across platforms.
Using incentives worth the equivalent of hundreds of millions of euros, the headline companies are trying to pull in new users. Alibaba alone announced a few days ago that it would provide ¥3 billion (€366 million) in vouchers. To benefit, users simply have to refer a new customer. The campaign is proving popular: Within a few hours, Alibaba recorded several million referrals. Tencent is handing out digital red envelopes worth ¥1 billion via its Yuanbao chatbot. Baidu is putting up ¥500 million. ByteDance used the hugely watched Lunar New Year Gala on state television to promote its Doubao app and AI models.
For now, Beijing appears to be tolerating this price war as part of the industrial build-out of a fast-growing sector – and as a mechanism for market formation. But it is a fine line. For months, regulators have emphasized they want to rein in ruinous price competition and excessive subsidies in consumer-facing industries. Tech companies, too, have repeatedly been invited to talks.
Officials describe the problem as “involution”: Competition that becomes ever more costly without generating sustainable profits. The question is how long the government will watch from the sidelines. If discounts and cash giveaways become a permanent condition, the market stops rewarding better technology – and starts rewarding whoever can burn the most money.
While other industries have faced sharp official reprimands and threats of penalties for similar price wars, companies in AI seem to enjoy greater political leeway. The pattern is not new. Back in 2015, Tencent distributed digital hongbao through WeChat, giving WeChat Pay a decisive boost against Alipay. In other sectors – from food delivery to ride-hailing – market share has repeatedly been bought through multi-year subsidy battles.
This time the contest is not about a new delivery platform or payment method, but about generative AI. The companies hope vouchers will prompt first-time interactions with chatbots. Yet the strategy carries risks. Unlike classic platform services, it is still unclear how AI chatbots can be monetized at mass scale. Subscription models, already common in the West, are widely viewed as hard to push through in China. At the same time, AI applications come with high computing and server costs.
What could remain is a market dominated by a small number of players – making it increasingly difficult for smaller providers to break through. For China’s broader economy, that would mean resources flowing into trench warfare between market leaders, without productivity or industrial deployment rising at the same pace. Those funds might be missing elsewhere in international competition with the United States – especially in research and development.
Hongbao marketing can attract many users in the short term, said Beijing economist Ouyang Rihui in the state business paper Economic Daily. But lasting retention, he argued, comes only from convincing product quality and a functioning ecosystem. E-commerce expert Li Mingtao adds that whoever embeds their AI in users’ daily habits could secure a long-term “winner-takes-all” position. In such an environment, China’s innovative capacity could also suffer.
The underlying idea is that the provider with the most regular users could end up controlling an entire digital ecosystem. It is often said in the industry these days that AI apps could become a new central gateway – similar to WeChat – through which users organize their entire online lives.
Sources: Caixin Global, Table.Briefings
