China's AI Race Shifts Focus to Cost, Products, and Paying Users

China's artificial intelligence sector is undergoing a significant shift, moving its focus from the technical prowess of AI models to cost-efficiency and the acquisition of paying users. Analysts emphasize that while AI can be developed at a lower cost, this does not automatically guarantee commercial success; the creation of real business value is paramount.

According to Xiong Wei, an analyst at UBS Securities, Chinese AI developers are continuously enhancing their models, particularly in coding and agentic capabilities. Concurrently, companies utilizing AI are becoming more discerning about the precise level of intelligence required for specific tasks. This marks a transition towards "token optimization," aiming to balance performance with price, rather than solely maximizing AI usage.

Xiong estimates that development costs for some leading Chinese models can be a fraction of their overseas counterparts, with API pricing also being substantially lower. This cost advantage is particularly beneficial for repetitive or lower-risk workloads.

Meanwhile, Kenneth Fong, head of China internet research at UBS, points out that growth for major Chinese internet platforms is decelerating as user traffic and mobile device usage time are no longer expanding significantly. While AI can reduce content production costs and improve advertising efficiency, limited consumer attention presents a bottleneck. For instance, increasing the volume of AI-generated short dramas does not necessarily translate to greater viewer engagement.

Mango TV's new fantasy drama, "The Later Journey to the West," exemplifies this evolving landscape. Produced on the company's in-house AI platform, it is the first AI-generated long-form drama to air in prime time on a national satellite channel. Despite a strong debut and efficient use of AI tools in production, the series' commercial viability and long-term profitability remain uncertain. This reflects the broader industry challenge: beyond efficiency and cost savings, AI adoption must demonstrate its ability to generate substantial economic value.