China Vows Response to US Sanctions Threat Against AI Firms

China's Ministry of Commerce warned it would take "all necessary measures" if the US moves to sanction Chinese AI companies over allegations of intellectual property theft through model distillation, calling the accusations a "smear campaign" and an act of "AI hegemony." The ministry defended distillation as a widely used technique and urged the US to strengthen dialogue on AI governance.

Bloomberg -- China warned it would take "all necessary measures" if the US moves to sanction Chinese artificial intelligence companies over allegations they improperly used American models to train their own systems. Most Read from Bloomberg - SpaceX at $100 Would Imply Zero AI Value, Morgan Stanley Says https://www.bloomberg.com/news/articles/2026-07-24/spacex-at-100-would-imply-zero-ai-value-says-morgan-stanley?utm campaign=bn&utm medium=distro&utm source=yahooUS - China Chipmaker CXMT Jumps 466% in Debut After Blockbuster IPO https://www.bloomberg.com/news/articles/2026-07-26/china-memory-champion-cxmt-set-to-debut-after-9-8-billion-ipo?utm campaign=bn&utm medium=distro&utm source=yahooUS - Stocks and Bonds Rally as Brent Tumbles Below $90: Markets Wrap https://www.bloomberg.com/news/articles/2026-07-26/oil-tumbles-as-us-and-iran-pause-military-strikes-markets-wrap?utm campaign=bn&utm medium=distro&utm source=yahooUS The Ministry of Commerce on Monday criticized the Trump administration's accusations that Chinese firms stole US intellectual property through model distillation, urging Washington to stop what it described as a "smear campaign" and sanctions threats. "These actions lack factual basis and legal support, and constitute double standards in practice, representing typical acts of AI hegemony," the ministry said in a statement. "China will take all necessary measures to firmly safeguard its legitimate rights and interests against any actions that substantially harm China's interests." The response escalates a dispute surrounding distillation, a method used to train one large language model using the outputs of another. Treasury Secretary Scott Bessent last week said the US will carefully examine China's models for signs of intellectual property theft, echoing accusations from OpenAI and Anthropic PBC that their Chinese competitors have exploited leading US models to develop rival systems at a fraction of the cost. The ministry said some Chinese models were released close to their US counterparts and had achieved leading capabilities in areas including front-end coding. The statement defended the use of distillation as a widely used technique across industries, while alleging that many American AI companies had distilled Chinese models, without naming them or providing evidence. The ministry called on the US to strengthen dialogue and communication on AI, improve governance of the technology and jointly promote its development. --With assistance from Josh Xiao. Most Read from Bloomberg Businessweek - The Bitcoin Slump Is Crushing Companies That Stockpiled Tokens https://www.bloomberg.com/news/articles/2026-07-22/bitcoin-s-price-plunge-crushes-companies-that-stockpiled-tokens?utm campaign=bw&utm medium=distro&utm source=yahooUS - Chinese Brands Resort to Crude Insults to Hawk LED Signs and Charging Cables https://www.bloomberg.com/news/articles/2026-07-23/china-s-creators-embrace-shock-advertising-to-sell-chargers-and-signs-online?utm campaign=bw&utm medium=distro&utm source=yahooUS ©2026 Bloomberg L.P.