China allegedly undercutting U.S. AI by copying tech “illicitly, systematically and at industrial scale” — and not much can be done about it

The White House asserts it has evidence that entities from the Asian superpower have been embarking on “industrial-level” initiatives to copy American chatbot models through a technique called distillation, which, used maliciously, enables them to reproduce our sector’s innovation for a fraction of the cost (and the work).

While the federal government has underscored such intellectual property risks before, the magnitude of the alleged conspiracy — and how it plans to address it — was really outlined this spring in a memo from the U.S. Office of Science and Technology, which condemned how these unnamed groups were attempting to “expose proprietary information… systematically extract capabilities from American AI [and] exploit American expertise.”

The key next steps listed at the time were to brief domestic tech giants on the details of the situation, establish best practices to identify and mitigate the threat, fortify companies with the resources to better defend against these campaigns, and “explore a range of measures to hold foreign actors accountable for industrial-scale distillation campaigns.”

But, as the months have progressed, it seems that the problem is worsening, if anything.

U.S. companies at a loss for how to stop firms from ripping off their tech

In recent letters to officials, leaders from two U.S. behemoths in the space, OpenAI (creator of ChatGPT) and Anthropic (known for Claude), raised alarm bells about tens of thousands of phony accounts they believed were being employed by at least one Chinese competitor to “illicitly” and “brazenly” steal their programs to mimic their products and “repackage them as their own.”

Like in April’s missive from the White House, the communications emphasized the systemic and industrial nature of these foreign efforts, and how much farther ahead they’ve put China in the AI race.

Industry players believe that the gap between U.S. and Chinese development is now “very slim,” with startups like Alibaba, Z.ai and DeepSeek gaining ground and matching homegrown makers with virtually as capable models that are cheaper to make and, critically, to use.

Much of the world already seems to view China as leading the sector, while it has also gained somewhat of a soft power edge as anti-American rhetoric festers on U.S. soil. Another interesting factor is an apparently growing trend among Chinese tech professionals who trained, whether through education or work, in America: returning home afterward to use their skills there.

A complicated rivalry

There are a number of factors that make the allegations in question here somewhat murky — and that make taking action against them difficult.