China warns of retaliation after US threatens AI probes on tech theft allegations

China's Ministry of Commerce on Monday accused the United States of engaging in 'AI hegemonism' and warned of countermeasures, following statements by senior US officials that Chinese artificial intelligence companies could face investigations, sanctions and trade restrictions. The US allegations centre on the suspected theft of American AI technology through a practice known as 'model distillation'.

The Chinese ministry said Washington was threatening punitive actions against Chinese firms based on unsubstantiated claims, asserting that there was a lack of factual or legal basis for such measures. The statement came after US officials indicated they were looking into whether Chinese companies had used distillation techniques to copy advanced US AI models in a manner that constitutes intellectual property theft.

Model distillation is a widely used AI training technique in which developers employ the outputs of a more capable model to train or improve another system. US officials have clarified that they distinguish between legitimate uses of distillation and large-scale extraction that crosses the line into IP theft. However, the Chinese government contends that the accusations are unfounded and part of a broader US strategy to maintain technological dominance.

The dispute marks an escalation in technology tensions between the world's two largest economies, with AI emerging as a key battleground. China has consistently pushed for its own AI development, while the US has sought to restrict the transfer of sensitive technologies to prevent military or commercial advantages. Both nations have enacted export controls and investment restrictions targeting AI and other high-tech fields.

Neither side has provided specific evidence regarding the alleged distillation-based theft. The Chinese ministry's statement did not specify what countermeasures it might take, but it warned that Beijing would protect the legitimate rights and interests of its companies. The US has yet to formally announce any probes, but officials have flagged them as a possibility.

Industry experts note that while distillation can be used to create derivative AI systems, the legality depends on the terms of service and the specific methods employed. Many AI models are released with licenses that allow for distillation under certain conditions, while others prohibit it. The debate highlights the challenges of regulating AI technologies that can be easily replicated or adapted.

As tensions continue, both sides have called for international cooperation on AI governance, yet their competing visions have hindered progress. The outcome of this dispute could set precedents for how AI intellectual property is protected globally.