AI Is Rewriting Consumer Commerce in China—Platforms Bet on 'Algorithm Management' Amid Spending Slowdown

As Spending Slows, Platforms Turn to AI to Protect Margins

How AI Is Rewriting Consumer Commerce in China - Barron's

As spending slows, platforms are turning to algorithms to protect margins and reshape competition.

On February 1, 2026, Barron's published a feature article by reporter Tanner Brown titled "How AI Is Rewriting Consumer Commerce in China." As China's consumer recovery falls short of policy expectations, major tech platforms including Alibaba, JD.com, and ByteDance are leveraging AI algorithms to protect margins and redefine the competitive landscape itself.

Background and Industry Trends

China's retail sales grew just 3.7% year-over-year in 2025, while household debt-to-GDP ratio fell to 59.4%. This marks the first quarterly decline in debt since 1995, indicating that households are actively deleveraging. Against a backdrop of declining housing prices and slowing income growth, consumers have shifted from "spending less" to "spending smarter," adopting an increasingly rational approach to purchases.

Meanwhile, China's online retail penetration has reached 86.9%, with user numbers approaching 1 billion. Growth through new user acquisition has nearly reached its ceiling, and platforms are pivoting to the battle of expanding "wallet share" among existing users.

Algorithm Management in Practice—Each Company's AI Strategy

Alibaba: AI Across the Entire Ecosystem

Alibaba invested approximately 120 billion yuan in AI and cloud infrastructure in fiscal year 2025. Cloud division revenue grew 34% year-over-year, with AI-related workloads recording triple-digit growth for eight consecutive quarters. The company is driving "agentic commerce" by integrating its proprietary AI chatbot "Qwen" with Taobao, Alipay, and Fliggy to complete everything from product comparison to payment within the AI interface.

However, the cost has been substantial—Q2 FY2026 net profit dropped 53% year-over-year, and free cash flow turned negative. Management has made clear its commitment to prioritizing AI infrastructure investment and user acquisition over short-term profitability.

JD.com: Data-Driven Personalization

JD.com deploys sophisticated AI algorithms across product discovery, dynamic pricing, and content personalization for its 400+ million active users. Demand forecasting algorithms have reduced inventory costs by an estimated 30%, driving efficiency through integration with the company's proprietary logistics network. However, its entry into the delivery market through "JD Takeaway" has triggered a subsidy war with Meituan and Ele.me, causing profits to plummet by over 50%.

ByteDance and Tencent: AI-Powered Super Apps

ByteDance has expanded its AI "Doubao" to system-level tasks such as ticket booking, while Tencent is developing AI integration within WeChat. According to CNBC reporting, each company's competitive advantage lies not in AI sophistication but in "ecosystem depth"—closed-loop systems with maximum service integration create user lock-in.

Implications and Applications for E-Commerce Businesses

The changes occurring in the Chinese market contain three key implications for global e-commerce businesses.

Alibaba's AI tools have reportedly improved conversion rates by 35% and reduced bounce rates by 50%. As consumers increasingly make rational purchasing decisions, the ability to "present exactly what they want" has become fundamental to competitiveness.

As Chinese companies are demonstrating, achieving 30% inventory cost reduction through predictive algorithms is a survival strategy in a margin-squeezed environment. E-commerce businesses globally should consider similar approaches now.

An era where AI chatbots handle everything from product search to payment in a single flow is arriving. McKinsey projects that the agentic commerce market will reach $3-5 trillion annually by 2030. Beyond traditional SEO and marketplace algorithm optimization, businesses must prepare for a world where product quality and brand strength determine whether AI agents "choose" their offerings.

Conclusion

China's consumer slowdown is paradoxically accelerating the evolution of AI commerce. Platforms are investing in AI infrastructure even at the expense of short-term profits, building structures that "protect margins even when spending doesn't grow" through algorithmic efficiency and enhanced user experiences. This trend is not unique to China—it is a scenario likely to unfold in any market where consumer growth decelerates. For e-commerce businesses, AI is no longer "future technology" but a "present-day business imperative" that demands immediate attention.