At present, China lags U.S. in every area of AI development — hardware, research and algorithm, and industry commercialization — except big data, according to a recent Oxford University report.

"WeChat is processing 7 billion photos a day — that's a massive, massive data resource. They will have an edge in image recognition," he added.

The comments by Tao, a well-known China expert, came in the wake of increasing legal backlash over data and privacy issues in some countries. Facebook, for example, has come under regulatory scrutiny for the way it handles user data.

Chinese technology companies won't be spared either, Tao said, explaining that tighter data privacy laws would be introduced at some point. And it would be a challenge for authorities to balance protecting the privacy of tech users and not hurting the sector's growth, he added.

Tech companies from China have grown leap and bounds in the past decade. Tao noted that the market capitalization of Tencent, for example, jumped from 105 billion Hong Kong dollars ($13.38 billion) in 2007 to 3.86 trillion Hong Kong dollars ($491.57 billion) 10 years later.

At a time when the Chinese economy is undergoing structural changes and a difficult deleveraging process, innovation led by tech companies can help the country maintain growth, said Tao.

"Cyclically, perhaps China will face headwinds due to deleveraging ... which will lead to some slowdown in GDP growth. The risk of even more acute adjustment is possible," he said.

"In the meantime the Chinese economy is moving into the next decade with new consumption and innovation. The risks and opportunities co-exist in China," he added.