It is customary in China to give gifts during the Lunar New Year. Throughout the most recent festivities, which ended on March 3rd, the country's artificial-intelligence industry enthusiastically embraced the tradition. Over the preceding month companies handed out coupons worth a generous 8bn yuan ($1.2bn) to anyone willing to download and use their applications, the latest versions of which boast "agentic" capabilities that allow bots to perform tasks such as ordering a meal with just a few spoken instructions.

Locally this subsidy spectacle has been dubbed the "hongbao wars", in reference to the red envelopes of cash typically handed out over the new year. Already most Chinese AI companies were making their models available at no charge. Now they are paying consumers to use their services. How long can the industry's ferocious rivalry last?

Chinese AI firms have been investing heavily to develop and promote their agentic services. In mid-February, ahead of the celebrations, Alibaba, an ecommerce giant, and ByteDance, which controls TikTok and its local sisterapp, Douyin, both launched upgrades to their chatbots that allow them to perform various tasks on behalf of users. More than 100m drinks were sold via Qwen, Alibaba's chatbot, during the Lunar New Year period. Doubao, ByteDance's chatbot, fielded almost 2bn queries over a few hours on February 16th during a televised gala that was sponsored by the company.

For China's internet giants, agentic chatbots provide a way to direct users to other services from which they make money, such as e-commerce. Some dream of creating an AI-powered "super app" that can facilitate nearly all of a user's digital transactions. Alibaba, ByteDance and Tencent, another Chinese internet superstar which offers the Yuanbao chatbot, seem best positioned; Baidu, China's equivalent to Google and creator of the Ernie chatbot, is falling behind. Industry insiders reckon that smaller AI companies without vast consumer-internet businesses will probably not survive. Even DeepSeek, an AI lab that shocked the world early last year with a model that could compete with the best foreign ones, has seen its share of users decline (though it helps to power Yuanbao and could regain momentum with a powerful new model that is expected to be unveiled soon).

Consumers have undoubtedly benefited from China's furious AI rivalry. But not everybody is happy. Shareholders in China's internet giants are still waiting for evidence that the investment binge will yield a return. Since the start of the hongbao wars the share price of Alibaba, which probably offered the most lavish subsidies, has fallen by roughly 30%. At the same time, there are signs that efforts to better monetise the technology are causing grumbling among China's top AI brains. On March 4th Lin Junyang, the chief engineer behind Qwen, unexpectedly quit Alibaba. Some in the industry speculate that increased commercial pressure may have frustrated him.

Then there are China's regulators. They have recently expressed displeasure with the subsidy war currently raging in the food-delivery business, and are probably just as unexcited about the battle for users in the AI industry. Chinese officials tend to look askance at consumer-internet services, and would much rather companies invest in supporting national efforts in areas such as chipmaking. Next Lunar New Year Chinese consumers should not count on more digital red envelopes.