China accuses the US of ‘AI hegemonism’ and threatens countermeasures

China's commerce ministry accused the United States of 'AI hegemonism' on Monday and threatened countermeasures, escalating a dispute that began with allegations of AI model distillation by Chinese firms. The ministry rejected the charge that Beijing-based Moonshot AI had distilled Anthropic's Claude to build its Kimi K3 system, arguing the technique is widely used and that Washington lacks factual or legal grounds for punishment. The White House has warned of potential sanctions or Entity List placement for firms caught running covert distillation attacks.

China’s commerce ministry accused the United States of “AI hegemonism” https://www.reuters.com/world/china/china-accuses-us-ai-hegemonism-threatens-countermeasures-over-potential-probes-2026-07-27/ on Monday and warned that it would retaliate, an escalation in a quarrel that started with an accusation of copying and has since pulled in chips, sanctions, and a pair of senior White House officials. The ministry said Washington was threatening Chinese companies with punishment on the basis of allegations alone, and it cast the whole affair as an effort to hold back China’s technology sector rather than a genuine grievance about intellectual property. The trigger was distillation, the practice of training a weaker model on the outputs of a stronger one. White House Office of Science and Technology Policy director Michael Kratsios alleged that the Beijing firm Moonshot AI had distilled Anthropic’s Claude to build its Kimi K3 system, and that it had done so at industrial scale through a purpose-built internal platform designed to dodge detection. The White House had already put China on notice https://thenextweb.com/news/us-white-house-ai-model-distillation-china-theft over the practice, though enforcing any of it remains the hard part. Treasury Secretary Scott Bessent went further, warning that firms caught running covert distillation attacks could face financial sanctions or a place on the Commerce Department’s Entity List, which would cut them off from American chips and software. That sanction threat https://thenextweb.com/news/bessent-china-ai-sanctions-huang-defends is what appears to have prompted Beijing’s response. The ministry’s language was measured but firm. “For any action that causes substantive harm to Chinese interests, China will take all necessary measures to firmly safeguard its legitimate rights and interests,” an unnamed spokesperson said, without spelling out what those measures might be. The ministry also rejected the underlying charge, arguing that distillation is a widely used technique, and that the US had produced neither factual nor legal grounds for the punishment it was threatening. The complaint that started all this came from Anthropic itself. Earlier this year the company told US lawmakers that three Chinese firms, DeepSeek, Moonshot, and MiniMax, had generated more than 16 million interactions with Claude using roughly 24,000 fraudulent accounts, extracting capabilities in reasoning, coding, and computer vision that they then folded into their own systems. It later named Alibaba’s Qwen lab as the source of an even larger distillation campaign https://thenextweb.com/news/anthropic-accuses-alibaba-distillation-claude-qwen , and it has used the findings to argue for tighter chip export controls, on the logic that restricting access to advanced semiconductors constrains both direct training and the distillation that feeds off it. Moonshot has denied the charge. The company said the gains in Kimi K3 came from its own architectural work rather than from copying a rival, a line that echoes the broader Chinese position that Washington is dressing up commercial protectionism as a security concern. Whether US regulators accept that is a separate question, and one the Entity List does not require them to answer before acting. The chip dimension runs underneath all of it. Washington has spent the past year closing loopholes https://thenextweb.com/news/us-nvidia-amd-china-subsidiary-chip-curbs that let Nvidia’s most advanced processors reach Chinese buyers through overseas subsidiaries, and reporting tied to the Moonshot case describes the company sourcing Nvidia GB300 chips and routing work through servers in Thailand. Neither Beijing nor Washington has confirmed those specifics on the record, and Anthropic’s own tally of the traffic it attributes to Moonshot has not been independently audited. Notably absent from Monday’s exchange was any mention of a Section 301 trade investigation, the tariff mechanism the US has reached for against foreign technology rules elsewhere. This fight is narrower, and for now it is aimed squarely at a handful of Chinese AI labs and the models they have shipped. What comes next is procedural. Bessent’s warning describes a possible sanction, not one that has been imposed, and no company has yet been added to the Entity List over distillation. The ministry’s countermeasures remain unspecified. For the moment both sides have staked out positions and left themselves room, which is its own kind of signal. Get the TNW newsletter Get the most important tech news in your inbox each week.