China Says AI Distillation Is 'Normal' Business, Not Theft, and Warns US Against Crackdown

China has rejected US accusations that Chinese artificial intelligence companies use model distillation to steal and copy American AI systems. China's Ministry of Commerce described model distillation as a normal technical and commercial practice used by AI developers around the world, including US companies.

Beijing also warned that it would take 'resolute countermeasures' if Washington used the issue to suppress Chinese AI companies. The ministry said it can improve learning efficiency, make better use of human knowledge and support the development of the wider AI industry.

The ministry rejected claims that model distillation amounts to 'stealing and copying'. It also said the practice can help make AI technology more accessible to developing countries.

Beijing Accuses US of Seeking AI Monopoly

The Commerce Ministry said US accusations reflected 'anxiety and double standards' and an effort to maintain a 'monopoly of the AI industry'. Chinese officials said some US companies have publicly acknowledged using Chinese models extensively for distillation when developing their own AI systems.

Beijing also accused Washington of politicising a technical process and using security concerns to put pressure on Chinese AI companies.

China warned that it would take 'resolute countermeasures' if the US suppressed Chinese AI companies under the pretext of targeting model distillation. The Ministry of Commerce did not give details of what those measures would involve.

US Agencies Detail Alleged Distillation Methods

China's response follows a joint cybersecurity advisory from the FBI, NSA and CISA. The advisory identified DeepSeek, Moonshot AI, Alibaba, Z.ai, MiniMax and StepFun. It also identified US frontier models including Anthropic's Claude, OpenAI's GPT and ChatGPT, Google's Gemini and xAI's Grok.

According to the advisory, Chinese AI developers used several methods to obtain capabilities from US AI systems.

These included routing distillation prompts through application programming interfaces, remote cloud providers and third-party aggregators.

The agencies said these methods could obscure user metadata and make detection more difficult.

The advisory also said requests were distributed across multiple accounts, models, platforms and development teams. It described the use of virtual private networks, automated agents and proxy servers outside mainland China to bypass geographic restrictions and terms-of-service safeguards.

Other methods included bulk purchases of premium subscriptions that could be shared among development teams. The advisory also described attempts to extract specific AI capabilities. These included reasoning, coding, computer vision and specialised functions.

Bessent Describes Distillation as 'Stealing and Copying'

At Southern Methodist University's Cox School of Business, US Treasury Secretary Scott Bessent said he viewed distillation as a form of stealing and copying American AI models.

He compared the practice to copying another student's homework. Bessent also argued that distillation and China's central planning meant Beijing could not ultimately get ahead of the US in AI. China has rejected that characterisation.

China Calls for AI Cooperation

Chinese Foreign Ministry spokesperson Mao Ning said China's AI development was the result of 'high-level technological self-reliance and strength'. Mao urged the US to avoid 'unfounded accusations or smears'.

She also called for greater cooperation between the two countries. Mao said AI development should be open, inclusive, universally beneficial and focused on the common good.

AI governance is expected to feature in planned talks between US President Donald Trump and Chinese leader Xi Jinping in Washington. Bessent is expected to lead bilateral discussions on AI governance with Chinese officials ahead of the meeting.

Experts Warn of Wider Effects

Yang Weiyong, an associate professor at the University of International Business and Economics, said tighter restrictions could make it harder to share technology internationally and drive up development costs.

Weiyong also said tighter restrictions could fragment the global AI industry. He warned they could slow the adoption of advanced technologies in developing countries that need more affordable computing and AI resources.

Zhao Minghao, deputy director of Fudan University's Center for American Studies, said Washington increasingly sees the technology race with China as a strategic contest to protect its position.