China Vows Retaliation, Denies AI Theft Accusations from the US

Jakarta, CNBC Indonesia – China has accused the United States of engaging in ‘AI hegemony’. China’s Ministry of Commerce has also confirmed it will retaliate against US actions alleging Chinese technology theft.

“For every action that causes substantial losses to China’s interests, China will take the necessary steps to firmly protect its legitimate rights and interests,” a ministry spokesman said, quoted by Reuters on Tuesday (28/7/2026).

Previously, the US had threatened investigations, sanctions and trade restrictions. China was also accused of using distillation methods to imitate US-owned AI models.

Model distillation is an AI training technique in which developers use the output of a more advanced model to train or improve another system.

The issue began after Beijing-based Moonshot AI released Kimi K3. The launch sparked debate in Washington over suspected imitation by China.

Indeed, the White House Office of Science and Technology Policy Director, Michael Kratsios, stated that Moonshot developed Kimi K3 by exploiting Anthropic’s Claude Fable 5 model. He said the government had gathered information relating to these allegations.

In addition, Moonshot was accused of acquiring servers fitted with Nvidia GB300 chips and accessing them in Thailand. This method was allegedly used so the company could train its latest AI model.

US Treasury Secretary Scott Bessent also confirmed that Chinese companies could face sanctions if proven to have stolen technology.

“When Chinese companies carry out covert, industrial-scale distillation that crosses the line into intellectual property theft, sanctions and placement on the Entity List will be considered,” Bessent explained.

Meanwhile, Moonshot has rejected the notion that Kimi K3’s improved performance stems from distillation. The company insisted it carried out original innovations in its underlying architecture.