Microsoft Corp (MSFT  ) backed ChatGPT parent OpenAI's proposed policy change, that will end access to its AI development tools in China, is likely to reshape the competitive landscape in the artificial intelligence sector.

Starting in July, OpenAI will terminate services for its Chinese users, a decision that has prompted immediate reactions from local companies.

Firms such as Baidu Inc. (BIDU  ) and Alibaba Group Holding Ltd. (BABA  ) are now positioning themselves to capitalize on the emerging gap in the market with various incentives to attract developers, Bloomberg reports.

This strategic pivot by OpenAI not only underscores the growing tensions between the U.S. and China over technological advancements but also sets the stage for a realignment within China's AI industry.

As American companies pull back, Chinese leaders in AI are ready to expand their influence and user base.

The withdrawal of OpenAI is poised to disadvantage numerous smaller startups that relied on these accessible, high-quality tools for development.

Industry expert Bernard Leong expressed concerns about a potential "bloodbath" in the sector, predicting that only a few major players would survive the upheaval.

Simultaneously, major Chinese AI companies saw their stocks surge, with firms like Iflytek Co. benefiting from the news.

In response, companies such as SenseTime Group Inc. and Zhipu AI are offering millions of free tokens and support to those transitioning away from OpenAI's platforms.

This development reflects broader efforts by the U.S. to limit China's access to cutting-edge technologies, including AI and semiconductors, amid escalating geopolitical tensions.