(Bloomberg) -- The days when Chinese internet companies could simply rely on the country’s sheer population are over. That’s why Tencent Holdings Ltd.’s Ma Huateng is betting on the future of artificial intelligence.

Tencent has assembled more than 250 people for its AI Lab, a fledgling unit intended to work with its most profitable divisions from gaming to social media. The company aims to teach machines how to better battle human players and strike up meaningful conversations, said Zhang Tong, the newly appointed director of the research unit. In Tokyo over the past weekend, Tencent demonstrated an early result of that collaboration, pitting its “Jueyi” against fellow computer players of the classical game Go in an annual competition. Jueyi -- which means “fine art” -- won against defending champion DeepZenGo.

China’s largest internet companies are investing billions in AI research, hoping to shed a reputation for being fast imitators and break new ground in a blossoming field. With AI set to transform everything from mobile apps to cars, companies like Tencent and Baidu Inc. want to pioneer ways to build smarter software and products. Ma, Tencent’s billionaire founder and chairman, has warned that companies that fail to create technology will lose out in future.

“Tencent used to be a product-driven company. Now we want to transform into a technology-driven company,” Zhang said in an interview. He wouldn’t say how much Tencent was investing but affirmed the company was in it for the long haul. “We’ve reaped the benefits of a large population, now we need to use technology and AI.”

Best known for messaging service WeChat, Tencent’s business encompasses news, entertainment and online games such as League of Legends and Clash of Clans. It’s become intertwined with the lives of hundreds of millions of Chinese who use WeChat and QQ to order food, play games and hail taxis. While it employs AI in areas such as news recommendations, infusing the technology into other services could have broad impact.

For now, Tencent’s demonstrating its ability in gaming, revealing its own version of DeepMind’s Alpha Go in Japan. Jueyi won all 11 of its matches in a field of about 30 entrants, beating the eventual runner-up -- Japan’s DeepZenGo -- twice along the way.

The company will use the techniques it’s learned to teach its games to put up a better fight -- addressing, among other things, a longstanding complaint of expert players. While Zhang didn’t provide names, he didn’t rule out titles like League of Legends or Dungeon Fighter.

Zhang, 45, whose AI career includes stints at International Business Machines Corp. and Baidu, said one of the biggest attractions for him was Tencent’s trove of data, hoovered up especially from its social media apps.

Tencent amasses data predominantly from semi-public content on QQ and WeChat and social media postings on sites like Weibo, China’s Twitter-equivalent. It places strict limits on what data staff can access, said Zhang. For instance, the company doesn’t use personal conversations on WeChat, which has more than 889 million users. The company will use certain mechanisms to wipe names from conversations so user identities will be protected, Zhang added without elaborating.

His team of more than 50 researchers and 200 engineers were pulled from among the ranks of technology stalwarts such as Google and Facebook Inc. He turned to the rest of Silicon Valley and China’s top universities for talent. Now that the staff is in place, one of their immediate goals is to bolster speech-recognition: helping machines comprehend and converse with humans.

The team also works on content generation, including creating automated news stories, photos and music. The company is building a platform that will provide tools for small businesses and startups that want to develop their own AI technology.

Tencent’s looking for ways to keep users glued to WeChat. On Wednesday, it signaled its intention to keep spending on areas from payments to content to increase social media engagement. Ma Huateng said the company could explore AI technology for driverless cars and online health care in the future.

In many of those areas, Tencent will be competing with a pair of powerful local rivals: Baidu and Alibaba Group Holding Ltd. are also in the race to develop AI use cases. They too can harness a vast database of information. Baidu, the country’s largest search engine, already employs 1,300 people in its artificial intelligence business and this year hired former Microsoft AI-architect Qi Lu to helm its operations.

Another thing all three have in common: they want to rank among the foremost companies in the field of AI, despite competition from names like Alphabet Inc., Facebook, IBM, and Microsoft.

“We want to be on par with the best technology companies in the world,” Zhang said. “We don’t just want to import, but also create innovation.”

--With assistance from David Ramli

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