China has rejected US allegations that Chinese Artificial Intelligence (AI) companies are conducting large-scale efforts to extract capabilities from advanced American AI systems, dismissing the claims as groundless and accusing Washington of seeking to maintain dominance over the global AI industry.

The dispute follows a joint cybersecurity advisory issued by the Federal Bureau of Investigation, National Security Agency and Cybersecurity and Infrastructure Security Agency, which accused Chinese AI developers of using a technique known as “distillation” to obtain capabilities from some of the most advanced AI models developed in the United States.

According to the US agencies, Chinese companies had been involved in such activity since at least late 2024. The advisory named DeepSeek, Alibaba, Moonshot AI and Z.ai and said the activities were likely carried out with awareness from the Chinese government.

The agencies described the alleged operations as “aggressive, malicious, and targeted” efforts conducted on an industrial scale to extract restricted proprietary functions and capabilities from US frontier AI models. The advisory identified several American AI systems that it said had been targeted, including Anthropic’s Claude, OpenAI’s GPT, Google’s Gemini and xAI’s Grok.

US authorities alleged that Chinese AI companies were routing large numbers of distillation requests through different channels to gain unauthorised access to American AI systems, potentially violating the terms of service of US AI providers. The agencies also alleged that Chinese developers reduced the cost of their efforts through the bulk purchase of premium subscriptions to US AI services, which were then shared among teams of developers.

The allegations add another point of tension to the increasingly competitive technology relationship between Washington and Beijing, particularly over artificial intelligence, an area both countries consider strategically important.

China’s Commerce Ministry rejected the US allegations, describing them as groundless and accusing Washington of attempting to establish a monopoly over the AI industry. The ministry warned that Beijing would respond if the United States used the allegations surrounding AI distillation as a justification for suppressing Chinese AI companies.

It also argued that distillation is not inherently an illicit activity, describing it as a common practice used by AI companies around the world, including those in the United States. The Chinese ministry accused Washington of applying what it described as “anxiety and double standards” in its approach to the technology.

The dispute comes as the US and China continue to compete over access to advanced semiconductors, computing infrastructure and artificial intelligence technology. Washington has imposed a range of restrictions on China’s access to advanced computing technology, citing national security concerns, while Beijing has sought to strengthen its domestic technology capabilities and reduce its reliance on American suppliers.

The latest accusations could add further complexity to discussions over AI governance and technology between the two countries.

China Calls For AI Cooperation

China’s Ministry of Foreign Affairs separately rejected the US allegations and called on Washington to avoid what it described as unfounded accusations against Beijing.

The ministry urged the United States to “refrain from making unfounded accusations or smears” against China, while emphasising the importance of cooperation between the two countries in artificial intelligence.

Foreign Ministry Spokesperson Mao Ning said both China and the United States were major powers in AI and should work together to advance the technology. “China’s AI development is the result of high-level technological self-reliance and strength,” Mao said at a regular news conference.

She said that Beijing believed all countries and stakeholders should work towards an AI environment that benefits a broad range of users rather than becoming dominated by a small number of actors. “We maintain that all parties should strengthen cooperation to promote AI development that is open, inclusive, universally beneficial and oriented toward the common good,” Mao said.

Her comments signal Beijing’s preference for cooperation on AI governance even as the two countries remain divided over allegations of technology misuse and competition for technological leadership. AI governance is expected to feature in planned talks later this month between US President Donald Trump and Chinese President Xi Jinping.

The discussions could provide an opportunity for Washington and Beijing to address concerns over the development and use of advanced AI systems, although the latest dispute demonstrates the significant differences that remain between the two governments.

For the United States, the allegations underscore concerns about the protection of proprietary AI capabilities and the potential transfer of advanced technology to Chinese competitors. For China, Washington’s accusations are viewed as part of a broader effort to constrain its technological development.

The disagreement therefore reflects not only a dispute over AI distillation but also the wider strategic competition between the world’s two largest economies over the future of artificial intelligence.