China vs US tech rivalry escalates as Beijing accuses Washington of ‘AI hegemonism and distillation’

China and the US tech rivalry has intensified as Beijing on Monday accused Washington of distilling Chinese artificial intelligence models for models training and “AI hegemonism.”

The accusations come from China’s commerce ministry officials who threatened countermeasures if the Chinese AI companies would be subject to sanctions, investigations and trade restrictions over the alleged theft of US technology.

Earlier this week, White House AI adviser Michael Kratsios blamed China for stealing Anthropic’s Fable technology through “distillation” to build the Kimi K3 model.

Chinese AI startup Moonshot built a sophisticated internal platform to execute large-scale distillation, cycling through multiple methods to bypass detection. However, China denied such allegations.

"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.

“It is understood that many American artificial intelligence enterprises have distilled Chinese models during their research, development and training processes,” the Chinese commerce ministry said in a statement.

The Chinese ministry said the US accusations “lack factual basis and legal grounds, adopt double standards in practice, and constitute typical acts of artificial intelligence hegemonism”.

“China will take all necessary measures to firmly safeguard its legitimate and lawful rights and interests,” it added.

US Treasury Secretary Scott Bessent warned that Chinese firms engaging in covert intellectual property theft will face potential financial sanctions and placement on the Commerce Department’s Entity List.

If added to the Entity List, Moonshot would face severe restrictions on accessing US semiconductors, software, and cloud services.

In February, Anthropic reported identifying over 3.4 million interactions with its Claude models linked to Moonshot. Hundreds of fraudulent accounts were allegedly utilized to target reasoning, coding, data analysis, tool use, and computer vision capabilities.