3 min readNew DelhiJul 28, 2026 09:40 AM IST
China’s commerce ministry on Monday accused the United States of “AI hegemonism” and threatened countermeasures after senior U.S. officials said Chinese AI companies could face investigations, sanctions and trade restrictions over the alleged theft of U.S. technology.
The ministry said Washington was threatening Chinese companies with punishment based on allegations they used “distillation” to copy advanced U.S. AI models, despite what it called a lack of factual or legal grounds.
Model distillation is a widely used AI training technique in which developers use the outputs of a more capable model to train or improve another system. U.S. officials say they distinguish between legitimate distillation and large-scale extraction that amounts to intellectual property theft.
‘All necessary measures’
“For any action that causes substantive harm to Chinese interests, China will take all necessary measures to firmly safeguard its legitimate rights and interests,” a ministry spokesperson said in a statement.
The comments mark an escalation in a dispute centred on Beijing-based Moonshot AI, whose recently released Kimi K3 model has drawn attention for its coding capabilities and intensified debate in Washington over whether Chinese developers are copying U.S. models or rapidly closing the technological gap through their own research. The controversy echoes the reaction in the U.S. to the rise of Chinese startup DeepSeek last year.
White House Office of Science and Technology Policy Director Michael Kratsios said last week the U.S. government had information indicating Moonshot distilled Anthropic’s Claude Fable 5 model to develop Kimi K3.
Kratsios alleged Moonshot had built a sophisticated internal platform to conduct large-scale distillation of U.S. models and switched between multiple methods of access to avoid detection. He also alleged the company had acquired servers equipped with Nvidia’s GB300 chips and accessed such systems in Thailand, likely to train its models.
Story continues below this ad
U.S. Treasury Secretary Scott Bessent later warned that Chinese companies could face financial sanctions or placement on the Commerce Department’s Entity List, which restricts access to U.S. technology.
“We support open-source AI and the innovation it unlocks. But open source is not open season on American IP,” Bessent wrote on social media platform X.
“When PRC (Chinese) firms conduct covert, industrial-scale distillation attacks that cross the line into IP theft, sanctions and Entity List designations will be on the table,” he said.
Moonshot has rejected suggestions that Kimi K3’s performance was achieved via distillation, telling China’s National Business Daily last week that its performance gains came from original changes to underlying architecture.
Story continues below this ad
Placement on the Entity List could severely restrict Moonshot’s access to U.S. semiconductors, software and cloud services. The U.S. used the trade blacklist as a central part of its campaign against Chinese telecommunications equipment maker Huawei beginning in 2019.
Anthropic said in February it had identified more than 3.4 million interactions with its Claude models linked to Moonshot. It said hundreds of fraudulent accounts were used to target capabilities including reasoning, coding, data analysis, tool use, computer vision and the operation of computers.
