XiaoIce gives Microsoft an intelligent 'edge' in battle with rivals

"XiaoIce fits Microsoft's transition direction. It will become a global product soon although it was designed by the company's China team in Chinese," Lu said.

He said Microsoft may also merge XiaoIce with Cortana, the company's flagship intelligent personal assistant similar to Apple Inc's Siri.

Microsoft installed Cortana on its Windows 10 operating system released last month and XiaoIce is currently only available on the Chinese version of Windows 10.

An earlier version of XiaoIce was introduced in WeChat last year after Tencent, the creator of the app, banned the robot six days later for violating a user limit policy.

Microsoft then moved the robot to its micro-blogging platform Weibo, but failed to gain user traction.

Liu Jinchang, a researcher at High-tech Research and Development Center under the Ministry of Science and Technology, said China's AI market has caught global tech companies' attention because of increasing demand.

"Both the government and multinationals see the sector as the next rapidly growing business," Liu said, adding the use of AI in both industrial and consumer market is set to surge. He did not predict the market size.

Chinese tech firms, including Baidu Inc and iFLYTEK Co Ltd, are also developing AI technology.

The products are used in online searches and automobile navigation with rather plain answers to user questions and demands.

For XiaoIce, however, the conversation can be brilliant even the topic is provocative.

In answering if the Baidu AI is a better one, XiaoIce wittily evaded the question and replied why Microsoft's Bing search engine trumps Baidu's.

"We put less ads in search results," XiaoIce said.