China Playing 'Grand Theft American AI'? What Is Model Distillation & How US Plans To Curb It?

Last Updated:April 24, 2026, 19:10 IST

Are Chinese companies exploiting American AI? What are US's claims? News18 explains

The Trump administration has vowed to crack down on foreign entities, specifically those based in China, that it accuses of “exploiting" and “stealing" American artificial intelligence technology.

Is AI being exploited? By which companies? What does it mean?

The memo

On April 23, Michael Kratsios, the President’s chief science and technology adviser, issued a memo accusing Chinese companies of conducting “industrial-scale" campaigns to distill capabilities from leading US AI systems.

The targets

While the administration’s memo broadly targets entities “principally based in China" specific companies have been identified by U.S. officials and AI labs for these practices: 

DeepSeek: Singled out for its rapid success in building powerful models using less computing power than U.S. competitors. Anthropic reported that DeepSeek conducted large-scale “distillation attacks" on its Claude model through fraudulent accounts.

Moonshot AI: Also identified by Anthropic for participating in coordinated efforts to extract model capabilities illegally.

MiniMax: Named alongside DeepSeek and Moonshot AI for using deceptive tactics to siphon American AI innovation.

Alibaba, Tencent, & ByteDance: These major tech players are under scrutiny for exploiting “legal loopholes" to acquire restricted U.S. chips (like Nvidia’s H20) to fuel their AI development.

What is the nature of the ‘exploitation’?

The administration is specifically targeting a process known as model distillation.

Distillation involves training a smaller, more efficient model on the outputs generated by a larger, more capable proprietary model (like GPT-4 or Claude).

The U.S. asserts that Chinese firms are doing this “at scale" to replicate the advanced reasoning and intelligence of American models without the massive R&D costs.

Lawmakers and administration officials are pushing to close loopholes that allow these companies to access frontier AI systems via the cloud or through third-party proxies.

What action will US take?

The administration has signaled it will work with American AI companies to build defenses and punish offenders through several avenues:

• Tightening restrictions on AI chips like Nvidia’s H20 and AMD’s MI308.
• Adding more Chinese firms to the Department of Commerce’s “Entity List," which effectively bars them from receiving any U.S.-origin technology.
• Proposing programs to reward those who report illegal technology transfers or distillation campaigns.
• Moving to increase civil and criminal penalties for export control violations.

What China said

The memo arrives at a time when China is challenging US dominance in artificial intelligence, an area where the White House says the US must prevail to set global standards and reap economic and military benefits. But the US-China gap in performance of top AI models has “effectively closed," according to a recent report from Stanford University’s Institute for Human-Centred AI.

China’s embassy in Washington said it opposed “the unjustified suppression of Chinese companies by the US".

“China has always been committed to promoting scientific and technological progress through cooperation and healthy competition. China attaches great importance to the protection of intellectual property rights," said Liu Pengyu, the embassy spokesperson.

In Beijing, China’s Foreign Ministry spokesperson Guo Jiakun told reporters Friday that the US claims are groundless and were smearing the achievements of China’s artificial intelligence industry.

“China firmly opposes this. We urge the US to respect facts, discard prejudice, stop suppressing China’s technological development, and do more to promote scientific and technological exchange and cooperation between the two countries," he said.

KEY FAQs

What is “model distillation"?

A technique where a smaller AI model learns by mimicking a stronger one—often using its outputs to replicate capabilities.

Why are DeepSeek and Moonshot AI in focus?

They’re accused in the US of using distillation to copy advanced American models at lower cost.

How is the US responding?

Through tighter export controls, access limits on advanced chips/models, and legal curbs to prevent IP leakage.

With AP inputs

News explainers China Playing 'Grand Theft American AI'? What Is Model Distillation & How US Plans To Curb It?

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