China rejects AI theft claims as new model rivals U.S. leaders

China has dismissed allegations that its artificial intelligence companies illicitly extract capabilities from foreign models, as the release of a powerful new Chinese AI system reignited tensions between Washington and Beijing over technology theft.

The denial, reported by Bloomberg on July 18, came days after Beijing-based Moonshot AI launched Kimi K3, a 2.8 trillion-parameter model that rivals the most advanced systems built by Anthropic and OpenAI. The model's debut on July 16 sent shockwaves through Silicon Valley, with early benchmark evaluations placing it ahead of Anthropic's Opus 4.8 and competitive with its Fable 5 model at a fraction of the cost.fortune+3

A Recurring Dispute

The distillation controversy began in February when Anthropic accused DeepSeek, Moonshot AI, and MiniMax of generating more than 16 million interactions with its Claude model through approximately 24,000 fraudulent accounts. Anthropic alleged the labs "targeted Claude's most differentiated capabilities: agentic reasoning, tool use, and coding". OpenAI made similar claims against DeepSeek around the same time.techcrunch+2

In June, Anthropic escalated its accusations, naming Alibaba ↘ 1.68% as having conducted what it called the largest distillation operation against Claude, with nearly 29 million interactions through thousands of deceptive accounts.bbc

Escalating Government Involvement

The dispute has grown beyond a corporate matter. In April, the White House Office of Science and Technology Policy released a memo accusing China of "industrial-scale" distillation campaigns, with OSTP Director Michael Kratsios stating, "The US has evidence that foreign entities, primarily in China, are running industrial-scale distillation campaigns to steal American AI".thenextweb+1

China's Foreign Ministry responded at the time by calling the accusations "entirely baseless" and "a slanderous smear against the achievements of China's artificial intelligence industry".straitstimes+1

Kimi K3 Resets the Debate

Moonshot AI plans to release Kimi K3's full model weights by July 27, making the world's largest open-weight model freely available. At $15 per million output tokens, K3 costs less than a third of Anthropic's Fable 5. The release coincided with the 2026 World AI Conference in Shanghai, where President Xi Jinping called for AI to remain "controllable" by humans and urged international cooperation.constellationr+3

None of the accused Chinese firms — DeepSeek, Moonshot AI, MiniMax, or Alibaba — have publicly addressed the specific distillation allegations.sfgate+1