In Depth: China’s AI Toy Story

The integration of conversational artificial intelligence (AI) is rapidly transforming the global toy industry, with China at the forefront of this innovation. As AI chatbots become increasingly ubiquitous, major toymaking hubs such as Chenghai in Guangdong province, known for producing nearly half of China's plastic toys, are experiencing a surge in AI-powered playthings. Notable examples include Feifei Rabbit—an academic-question-answering cartoon bunny from Shifeng Cultural Development Co. Ltd.—and Shenzhen Intellifusion Technologies Co. Ltd.’s electronic pet dog, which can simulate being "fed" and falling ill. In July 2024, Shenzhen Haivivi Technology Co. Ltd. introduced BubblePal, an interactive pendant enabling conversations with beloved cartoon characters[para. 1][para. 2][para. 3].

Following the 2025 Spring Festival, demand for AI toys soared, leading the Ministry of Industry and Information Technology to predict the Chinese AI toy market will reach 29 billion yuan ($4.1 billion) by 2025. Further, Northeast Securities forecasts the market will nearly triple to 85 billion yuan by 2030, out of a total domestic toy market currently valued at 100 billion yuan[para. 4][para. 5].

A diverse range of companies, from traditional toymakers to robotics specialists and startups, are pursuing this opportunity. Established firms like UBTech Robotics Corp. Ltd. see small AI robots or "pets" as practical applications for current language models, while animation studios such as Alpha Group have launched high-end, AI-powered versions of their popular characters. These new products can command up to four times the price of traditional plush toys[para. 6][para. 7].

Venture-backed startups are taking a different approach by focusing on innovative experiences and emotional companionship. Many are founded by tech veterans, such as Haivivi’s Li Yong, who leverages his experience at Alibaba to offer BubblePal—over 250,000 units were sold as of August, securing 200 million yuan in funding. Startups like Link-X Technology target adults seeking emotional connection, while others, like Robopoet, offer electronic pets with subscription services for more advanced interactions. However, market traction remains modest, with most firms still cultivating consumer habits and sales figures on platforms like Taobao in the low thousands. Investors emphasize team quality as the main success driver due to the industry’s low technical barriers[para. 8][para. 9][para. 10][para. 11][para. 12].

Despite the excitement, challenges abound. The proliferation of low-cost, poor-quality products has commoditized the technology, hurting firms aiming for premium offerings. The rapid market evolution means some companies change strategies mid-development, often turning their focus overseas. Exporting, however, presents hurdles: AI toys depend on cloud infrastructure (and cheap mobile data), making overseas data costs burdensome and forcing reliance on foreign AI models. Privacy concerns are more pronounced in Western markets, further complicating expansion[para. 13][para. 14][para. 15][para. 16].

Successful partnerships with hardware giants help some startups, such as Robopoet’s collaboration with Huawei, which uses Huawei’s Pangu AI model and retail network. Regulatory and social challenges persist, particularly regarding child safety and privacy. In November, U.S. research highlighted unsafe content in some AI toys, leading to product withdrawals and AI model suspensions. In response, China pledged to update data and quality standards, while companies implement content moderation systems[para. 17][para. 18][para. 19].

Finally, the sector struggles to maintain consumer engagement. Early user tests reveal high initial use, but rapid novelty loss and declining activity threaten the industry's objectives of sustained companionship and emotional value, ultimately casting doubt on the long-term success of AI toys[para. 20][para. 21].