Chinese tech giants Tencent and Alibaba touted artificial intelligence as a transformative technology on company earnings calls this week.Costfoto | Future Publishing | Getty ImagesChina’s technology giants are banking on artificial intelligence to bolster their businesses, touting new features for their existing services as well as novel generative AI tools, as hype around the technology reaches dizzying heights.Alibaba, Tencent and Baidu, collectively known as “BAT,” all sung the praises of generative AI — a subset of artificial intelligence that deals in tools that can dream up text, images and other content in response to user prompts — on company earnings calls this month.Styled on ChatGPT, the popular Microsoft-backed AI chatbot that has become renowned for its ability to hold more humanlike conversations, such systems have attracted huge interest from investors and a heated race among companies seeking to incorporate the technology or develop their own alternatives.In the Chinese companies’ case, generative AI tools are expected to be more restrictive in terms of what users can or can’t say due to Beijing’s tight grip on internet services in the country.But the Chinese government hasn’t opted to kill ChatGPT-like products, though ChatGPT itself remains inaccessible in the country. Instead, Beijing introduced new rules to manage how companies develop such tools.China’s tech giants have made no delay in using that more open attitude to new technological innovations — a stark contrast with its approach to cryptocurrencies — to their advantage.’Paradigm shift’China’s tech giants last week outlined their belief that they see generative AI as a technological revolution. “Generative AI represents a tremendous opportunity for us. It can be compared to the introduction of the internet and smartphones,” Robin Li, Baidu’s CEO, said on the company’s first-quarter earnings call.”To capture this opportunity, we leveraged our technology capabilities and our extensive experience in search, knowledge graph, and dialogue,” he added. Baidu said it was awaiting regulatory approval for its Ernie Bot chatbot service, a rival to OpenAI’s ChatGPT. On Wednesday, Tencent confirmed the existence of a so-called foundation model it is working on, called HunyuanAide. Foundation models are large AI programs trained on vast amounts of data so that they can be adapted to solve a wide range of tasks. Meanwhile, Tencent President Martin Lau said the firm is “making good progress” with the technology. “I think one key strength for us is obviously the use cases,” Lau said on the firm’s first-quarter earnings call. “We have different products [and] teams already planning some interesting offerings alongside … their products.”Alibaba, which developed its own ChatGPT-style generative AI tool Tongyi Qianwen earlier this year, said its system could help accelerate customer adoption of its cloud computing service. So far, Alibaba has seen ample demand for Tongyi Qianwen, with 200,000 enterprise customers applying for trial access.”The development of AI technology presents a huge new opportunity for the cloud business because artificial intelligence applications will result in an exponential increase in demand for computing power,” Daniel Zhang, the company’s CEO, said on its fiscal fourth-quarter earnings call.”This kind of computing power needs to be provided as a kind of public service or infrastructure. So, this is a huge opportunity for us going forward.” Zhang’s commentary came as Alibaba announced plans to spin off its cloud computing unit as a separately listed entity.The tech giants’ ambitions on AI reflect an escalating global arms race that is now underway as countries seek to gain leadership over the technology. Microsoft and Google, two of the largest technology companies, currently dominate the conversation surrounding AI with their respective advanced language processing technologies.Dan Ives, managing director of equities at Wedbush Securities, told CNBC that generative AI is seen as a “paradigm shift” in the tech industry. China, specifically, “has some of the most advanced AI tech in the world,” he added.”We believe this is a Game of Thrones also playing out in the China Tech market as the gloves are on for this battle,” Ives said.”The Big Tech stalwarts such as Alibaba, Tencent, and Baidu among others are trying to put an iron fence around its installed base on AI. Many innovative vendors are going after this market and China tech is now in the midst of a secular shift around AI.”The comments from some of China’s top tech companies last week hint at how Beijing is seeking to ramp up its rivalry with the U.S. on AI.There have been concerns, however, that a U.S. ban on Chinese companies from buying advanced chips and chipmaking equipment may stunt China’s AI progress. Alibaba, Baidu and Tencent don’t produce their own chips, instead relying on chipmakers like Nvidia to get the processors needed for their cloud computing operations. This makes them vulnerable to sanctions from the U.S.Over the weekend, China banned its domestic companies from purchasing equipment from U.S. chipmaker Micron in retaliation to the U.S. sanctions. “I think, going forward, obviously AI requires a lot of computing power so, as a result, it’s hard to see how China can manage to win this competition if it just keeps having this crucial technology being banned to its AI industry,” Hao Hong, chief economist of Grow Investment Group, told CNBC’s “Squawk on the Street” Monday. For its part, Tencent said chips are still “largely available” for the time being and that there are “some workarounds” that enable it to continue maintaining access to graphics processing units in China. These GPUs are used to power AI applications.A.I. with limitsOne thing that was clear from the Chinese tech giants’ earnings statements and calls last week was that they’re aware of — and keen to comply with — an impending regulatory tightening on AI.”We felt the government’s general stance is supportive of regulation — but the industry has to be regulated,” said Tencent’s Lau. “And I think this is not something that’s specific to China … If you look at the U.S., there’s a lot of public discussion about having regulation.”Baidu’s Li said the company “put a lot of effort into both technology and compliance development to ensure our products and services meet applicable regulatory requirements.””For important and sensitive topics, we have to make sure AI will not hallucinate. Given that LLM is more or less a probabilistic model, this task is not trivial at all,” he added. LLMs are large language models, meaning advanced AI algorithms trained on huge sets of data to process, understand and produce human language.”The requirements are not final yet, so we have to continue to update our strategy as it evolves.”It comes on the heels of a harsh crackdown from China on its domestic tech businesses which has only begun to subside after wiping $1 trillion off the combined industry’s market value.China had taken strict measures against some of its most valuable tech firms, from Alibaba and Tencent, to Didi and Meituan, in moves that were interpreted as keeping the companies in line and preventing them from abusing their market power.WATCH: Can China’s ChatGPT clones give it an edge over the U.S. in an A.I. arms race?