The joint advisory released by the FBI, National Security Agency and Cybersecurity and Infrastructure Security Agency stated that Chinese firms had been taking capabilities from United States frontier AI systems since late 2024. These agencies claimed that Anthropic’s Claude, OpenAI’s ChatGPT, Google’s Gemini and xAI’s Grok have been targets of the “distillation” technique, where a smaller model is trained on the outputs of a larger, more capable model to replicate its behavior.

China refutes accusations made by the United States

The agencies acknowledged that distillation was a standard, widely used method in AI research; however, they claim the issue lies in the scale and intent of the Chinese firms. “The sheer scale of these campaigns and their sophistication indicate that distillation is not a supplement to these companies’ AI model development, but the critical core of it,” the advisory said. The agencies also added that the activity was carried out “likely with Chinese government awareness,” although they stopped short of claiming Chinese intelligence services were involved.

Six Chinese AI developers were mentioned in the joint advisory, including DeepSeek, Moonshot AI, Alibaba, MiniMax, StepFun and Z.ai. The joint advisory document stated specific capabilities that the agencies allege were copied from particular U.S. models, ranging from “legal specialization optimization” to “agentic functions.” The security agencies also described a gray market of proxies called “transfer stations” that Chinese firms allegedly use to slip past geographic limits, safeguards and terms of service on United States products.

The Chinese companies are also said to have reduced costs by purchasing premium subscriptions from United States firms in bulk and sharing access among teams of developers. Anthropic had made a similar claim previously, alleging that three Chinese labs ran about 24,000 fraudulent accounts to generate more than 16 million interactions with Claude. Beijing responded on Wednesday via Foreign Ministry spokesperson Mao Ning, who said the country’s AI progress was due to “high-level scientific and technological self-reliance” and urged Washington to stop “making groundless accusations,” according to NBC News.

Mao also stated that both China and the United States were “major artificial intelligence countries” that “should step up cooperation.” A Chinese Embassy spokesperson in Washington called the distillation statement a “deliberate attack” on China’s AI industry. AI governance is expected to feature as a major talking point when Trump meets Xi on September 24.

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According to an earlier Cryptopolitan report, the Pentagon released the update just as the two countries kept tightening controls on technology, data, energy, and manufacturing. The Ministry of Commerce of China announced on Saturday that America went beyond its limits in terms of national security concerns, as well as exerted governmental influence to pressure the business of China. The ministry demanded the withdrawal of such decisions. It also asked Washington to deal with Chinese companies in a fair manner and build a stable relationship with China.

China warns the US to cancel its categorization of Chinese platforms

China was direct in its latest warning, noting that, “Otherwise, China will take resolute and forceful countermeasures, and the consequences and responsibility arising therefrom will rest entirely with the US side.” The Chinese embassy in Washington rejected the blacklist. Spokesman Liu Pengyu said firms from China follow the laws of the countries where they operate. “The US should stop its wrong practice and create a fair, just, and non-discriminatory environment,” Liu said.

The Pentagon list is known as the Section 1260H list. US law requires the Defense Department to update it yearly through 2030. A company can ask the Pentagon to review its case and submit evidence to challenge the label. Alibaba said there was “no basis” for adding the company, and that being named on the 1260H list does not just automatically ban exports or stop a company from serving American customers. The US Commerce Department runs a separate Entity List, and that list can block or limit access to American technology, Alibaba explained.

The 1260H list is one of several tools Washington uses as the US and China separate in sensitive sectors. On Saturday, Chinese regulators announced stricter rules for financial information services. The Cyberspace Administration of China said companies must sort data into four groups: core, important, sensitive general, and routine general. Officials said each category would depend on its value, sensitivity, and the damage a leak could cause. Six other agencies issued the rules, including the People’s Bank of China.

The rules are part of Beijing’s data security system. China passed broad laws before adding sector rules. “Financial information services are developing in an orderly manner, and the volume of data is expanding … which urgently requires standardised, classified and graded management,” the guidelines said. The new rules do not cover state secrets or military information. Meanwhile, as previously reported, Trump announced Marco Rubio as Secretary of State and Mike Waltz as National Security Advisor.

Neil Thomas, a fellow at the Asia Society Policy Institute’s Center for China Analysis, said the choices showed that Trump planned to put China at the center of his foreign policy. Before Trump’s January 2025 inauguration, Vice President JD Vance and Elon Musk met separately with Chinese Vice President Han Zheng in Washington. Han attended as Xi Jinping’s special representative. His visit showed Beijing wanted working ties with the new US administration even as both sides added more pressure in trade, technology, security, and industry.

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In addition, the facility is expected to deliver 10 megawatts of computing capacity by the end of 2027. The plans emerged from a memorandum signed during Paraguayan President Santiago Peña’s visit to Taipei in May, where he met Taiwan’s President Lai Ching-te. Taiwan’s International Cooperation and Development Fund has since contacted Google, Microsoft, and Amazon about investing in the project or serving as anchor customers for its compute capacity. Paraguay is one of just 12 governments worldwide that maintain formal diplomatic ties with Taiwan.

Taiwan invests in a South American ally

Beijing, which claims Taiwan as its territory, has systematically pulled the South Asian country’s Latin American partners over the past decade. Panama switched ally positioning in 2017, followed by the Dominican Republic and El Salvador in 2018, Nicaragua in 2021, and Honduras in 2023. The data center project will split ownership and financing between the two governments through a digital entity overseen by both nations. The countries will both contribute actively to the core infrastructure.

Paraguay is expected to meet its power needs through hydroelectric power from the Itaipu Dam, one of the cheapest and cleanest energy sources in Latin America, while Taiwan will provide its expertise in chips and hardware, along with connections to technology supply chains. Government officials in Paraguay have described the first phase of development as purely focused on use by the Paraguayan government. These uses will include processing of public records, tax systems, and citizen health data.

Paraguay aims to position the facility as a national AI asset and not any other low-cost hosting site for foreign cloud and AI operators. Officials also outlined later expansion phases that could push power usage demand up to 100 megawatts and eventually as high as 1,000 megawatts, although those targets remain out of sight currently. The data center is the most visible piece of a wide and intensive effort by Peña’s government to prove the Taiwan relationship continues to deliver concrete economic value.

That argument has faced ongoing domestic opposition, as Paraguayan agribusiness exporters and some political figures have pushed to switch recognition to Beijing for years. These individuals and political officials have argued that formal ties with Taiwan hurt the country by cutting off access to China’s market for soybeans and beef, which are important products in the country’s economy.

Peña has countered these arguments by pointing to the level of technology transfer, investment, and new trade access granted, including Taiwan’s decision to open its market to Paraguayan poultry. During his Taipei visit, he defended the partnership as grounded in shared democratic values and called for the country’s participation in more international organizations. Beijing responded by urging Paraguay to “stand on the right side of history” and sever ties with Taipei.

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The development has now given way to a conflict in the commodity markets between raising the interest rates needed to fight inflation and the risks associated with geopolitics, with effects being felt in trade flows and central bank calculations globally. The decline in the precious metal market in China followed the global sell-off, with prices for spot gold falling to as low as $4,022.09 per ounce, levels last seen in November, Reuters reports. Yet the yellow metal recovered somewhat to close at $4,089.12 per ounce, driven by short covering.

According to reports, what led to the fall was issues related to whether the US Fed would hike rates before the end of the year. The latest US Consumer Price Index report noted that the inflation rate rose to its highest in the past three years, owing to rising energy prices. This comes amid the tensions between the US and Iran. It has changed the odds. Traders are now seeing a greater than 70% chance of rate hikes within the coming months as per the CME FedWatch Tool.

Shanghai Futures Exchange sees gold futures selloff

Gold becomes less attractive as the interest rates rise, since there is no earnings capacity associated with it. As per Matt Simpson, a market analyst with StoneX Group, quoted by Reuters, $4,000 represents an” obvious level of support that could prompt bears to book a quick profit or tempt battered bulls from the sideline.” Unless the upcoming Producer Price Index (PPI) report surprises the markets, a technical rebound for the precious metal can be expected.

While gold and silver fell in Shanghai, the rest of China’s futures board moved in the opposite direction. Polysilicon led the morning session with gains exceeding 4%, and low-sulfur fuel oil climbed nearly 4%. Palladium, liquefied petroleum gas, SC crude oil, methanol, and lithium carbonate each rose more than 3%. This is an indication of how the tensions in Iran have had different impacts on the international commodities market. Energy prices respond positively to any disruption in their supply chain.

Iran announced that it had blocked the Strait of Hormuz following new attacks from America, and oil prices went up by over $2 on Thursday. This is the energy price shock that has led to inflation levels that pose a threat to gold through interest rates. The response by China to increased energy prices has been to handle imports in terms of pricing. According to the Reuters report, columnist Clyde Russell indicated that China has reduced its imports to 29 per cent, a level not experienced in the past 8 years.

He also noted that it is now as low as 7.79 million barrels per day in May, because of the premium that was being charged for Saudi crude oil. Instead of paying for their energy at such high rates, China decided to use its stored energy during the low prices of Russian and Iranian crude. Copper imports also softened, falling 7% in the first five months of 2026 compared to the same period in 2025, as London copper prices rose 9.6% year-to-date.

Aluminium moved the other way: Chinese producers ramped exports to 632,000 tons in May, capitalising on higher international prices caused by Middle East supply losses. The gold sell-off occurs at a time when the structure of global gold demand is changing. According to Metals Focus, a consultancy firm dedicated to delivering statistics, analysis, and forecasts for the precious metals markets, physical investment will surpass jewellery for the first time in becoming the biggest form of gold demand in 2026.

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Amid all that drama, BTC mining difficulty has stayed at all-time high levels, and the industry has responded with sharp pivots, while corner-cutting stunts are being punished harshly by authorities in China and areas under embargo in Russia. officials in China have been cracking down hard on underground Bitcoin miners in the region, handing out more than a decade of prison time for two men in Heilongjiang Province for stealing electricity.

China jails duo for illegal BTC mining

According to reports, the ringleader Zhang and another named Zhao illegally tapped into an oilfield’s power grid in September 2024. They used that power to run 24 Bitcoin mining machines in an abandoned pigsty to reroute large amounts of electricity without paying. Chinese courts found them guilty of illegal electricity theft and other offenses linked to illegal crypto mining.

Between them, the duo faces what amounts to a shared 14-year term, with Zhang getting the lion’s share of the prison sentence as the main perpetrator. The sentence tracks with China’s zero tolerance for such cases and is expected to serve as a deterrent to others doing the same thing in the country. The case involving the Heilongjiang duo is not an isolated event. China has actively been ramping up activity against illegal mining.

In March, Chinese authorities imposed approximately $14.5 million in liabilities on a major polysilicon producer in Xinjiang for illegally supplying electricity to miners. When it was found out during a raid that went down in December, the industrial giant paid the price in hefty fines, but the authorities did not stop there. They also confiscated the illegal gains that came from the endeavor. As a result of that exposure, between 400,000 and over 1 million mining machines were reportedly shut down.

The event also reportedly triggered noticeable dips in the global Bitcoin hashrate. Amid all that, the Bitcoin network continues to become more competitive. Mining difficulty is known to adjust roughly every two weeks to maintain consistent block times has remained near all-time high levels even in the face of recent volatility. Current levels sit around 139 trillion, with the global hash rate at 981.59 EH/s according to Cloverpool data.

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According to Alibaba, the new chip is also more than three times faster than the older XuanTie C920. In the announcement blog post, Alibaba said RISC-V’s open standard lets chip designers customize instruction sets and speed up specific AI jobs with little or no licensing fees. “RISC-V’s open-standard nature allows chip designers to customize instruction sets and accelerate specific AI workloads with no or low licensing fees. This is particularly important for the development of AI agents,” said Alibaba.

Alibaba to push agentic AI tools with new chip

The new XuanTie C950 is part of a chip plan being pushed through T-Head, Alibaba’s chip arm, which is mainly focused on the Zhenwu 810E series for AI training and inference, while the XuanTie line is aimed at high-performance cloud systems and agentic AI. The launch came days after Alibaba rolled out Wukong, an enterprise platform built for AI agent workflows, as more companies and institutions across China adopt OpenClaw.

On Monday, the firm launched Accio Work, the international version of that platform. Alibaba said the system can autonomously handle all types of business operations for small and medium-sized enterprises. Earlier this month, the company also regrouped some of its AI teams under a new unit called Alibaba Token Hub, which is focused on building AI work platforms for enterprise users.

That business change is happening as Alibaba looks for new ways to stay profitable while competition in China pushes down token prices for AI models. The pressure is simple. Cheaper model usage means companies need other ways to make money. So Alibaba is going deeper into chips, cloud systems, and enterprise software at the same time.

Meanwhile, Huawei also stepped up its own AI hardware push with the launch of the Atlas 350 accelerator card for inference, unveiled at its China Partner Conference on Friday. Huawei Vice President Ma Haixu said the card runs on the new Ascend 950PR chip, which was designed to provide stronger computing power and storage for AI inferencing.

Zhang Dixuan, head of Huawei’s Ascend computing business, said the Atlas 350 delivers 1.56 petaflops of FP4 computing power, which is 2.8 times the level of Nvidia’s China specific H20 chip. He said the product is meant to match or beat other players in search recommendation, multimodal generation, and large language models. An accelerator card is a hardware unit made for a specific task and built to be added to a server.

The Huawei launch came as the US-sanctioned company keeps expanding its AI computing infrastructure with chips it developed on its own, including its Ascend AI line, without using American technology. At the same time, pressure is building on Nvidia from Washington. In a letter to Commerce Secretary Howard Lutnick, Republican Senator Jim Banks and Senator Elizabeth Warren called for “immediate action” over what they called a “large-scale diversion of advanced American AI chips to China” through Southeast Asia.

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The State Administration for Market Regulation said Friday it punished several companies for unfair competition, falsely imitating and advertising AI services from other brands. One of the fined companies is Shanghai Shangyun Internet Technology, which was found running a sham ChatGPT service through Tencent’s WeChat platform. The regulator fined the company 62,692.70 yuan, equivalent to about $9,034.

China fines firms impersonating ChatGPT and DeepSeek

According to the agency, the service had been advertising itself as the “official Chinese version of OpenAI’s ChatGPT,” and charged users for AI conversations, a conduct that breached the country’s Anti-Unfair Competition Law. “The company was fully aware of the industry status and influence of OpenAI’s ChatGPT. They deliberately created a false impression that they are providing the official service to mislead users into making purchases,” it said during a press briefing on Friday.

According to the AI Market Regulation government arm, a wave of DeepSeek mini-programmes and websites imitating the original platform appeared in early 2025. The watchdog penalized the services for trademark violations and for trying to deceive the public through falsified promotional language. “This investigation served as a deterrent to illegal operators … and guided the AI market towards a standardised and orderly path of development,” the agency said.

Another firm, Hangzhou Boheng Culture Media, was fined 30,000 yuan for running an unauthorized website that allegedly offered “DeepSeek local deployment.” The regulator said the site copied fonts, icons, and layout from DeepSeek’s official platform and tricked users into paying for the service.

In the regulator’s campaign roundup, an engineer was slapped with a 360,000 yuan penalty for illegally accessing company servers that held confidential code and algorithm data. Furthermore, a Shanghai firm received a 200,000 yuan penalty for building AI phone-call software used by loan agencies to carry out scams.

A Beijing-based company was also fined 5,000 yuan for “freeriding” on DeepSeek’s name to promote its own local deployment software. China’s innovation regulators have been trying to balance out the growth of AI companies and fair competition in a market where developers are aggressively competing to topple American entities. Just over a year ago, DeepSeek became the talk of the globe after it launched a chatbot with lower user fees and development costs compared to OpenAI’s ChatGPT.

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The firm plans to make T-Head a competitor to Nvidia Corp. in the global and domestic AI accelerator markets. Alibaba Group Holding Ltd. is reportedly planning to list its chipmaking department, T-Head, as an independent company partly owned by its own employees. The first phase of this plan involves a structural reorganization to align the interests of key engineers and executives with the company’s future stock performance. Once the restructuring is complete, the group will explore an initial public offering.

Alibaba reportedly set for T-Head IPO

T-Head, also known as Pingtouge, is an important part of Alibaba’s “AI + Cloud” strategy. For years, the unit functioned primarily as an internal R&D department and designed custom silicon to improve the efficiency of Alibaba’s massive data centers. With China now having its access to the world’s most advanced AI chips, specifically those from Nvidia, restricted, Alibaba has transformed T-Head into a commercial provider of domestic hardware alternatives.

Investors are currently hungry for “Nvidia alternatives,” but Nvidia is still the global leader with a market capitalization hovering around $4.5 trillion. The Cyberspace Administration of China (CAC) recently advised major domestic firms to stop purchasing certain Nvidia models, such as the RTX Pro 6000D, due to security and supply concerns. The complications between Nvidia and China have created a “vacuum” in the market that companies like Alibaba, Huawei, and Baidu are racing to fill.

The Hong Kong stock market is currently experiencing a record-breaking surge in tech listings. In the first two weeks of January 2026 alone, IPOs in the region raised over $4.3 billion. This “January boom” is due to Chinese AI and semiconductor firms seeking capital to fuel the country’s technological self-reliance. AI startups like MiniMax and its rival Zhipu AI both saw significant investor interest during their recent market debuts.

Earlier this month, Alibaba served as an investor for Montage Technology’s $900 million Hong Kong listing. Montage designs high-speed data flow chips for AI accelerators. Following the investment, the company saw its valuation climb toward $22 billion. T-Head’s newest flagship product, the T-Head Parallel Processing Unit (PPU), is designed specifically for high-volume AI inference tasks.

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“The growth rate is expected to reach around 5%, continuing to rank high among the world’s major economies,” he said. He pointed to a shift, noting that things moved away from just growing fast and toward improving quality and innovation. Xi also warned against “reckless” projects and backed slowing down in certain regions to avoid unnecessary risks.

China records recovery in factory and service industries

The data backs up the claim made by Jinping. The official manufacturing PMI for December hit 50.1, jumping past the breakeven mark and beating the 49.2 forecast. That represents a rise from November’s 49.2. The composite PMI, which includes both manufacturing and services, also rose to 50.7 from 49.7, a clear step into expansion territory.

Services and construction were also affected positively. The non-manufacturing PMI climbed to 50.2, up from 49.5 the month before. All of these point to a broader comeback after a rough patch earlier in the year. Huo Lihui from China’s National Bureau of Statistics said December saw a clear boost in new orders, marking a “significant expansion” in both supply and demand.

The private sector floated impressive numbers. A separate PMI by independent firm RatingDog reached 50.1 in December, up from 49.9. This also beat the expected figure of 49.8. Yao Yu, founder of RatingDog, said manufacturing is growing again. He said new orders have been rising for seven months straight, helped by product launches and more business activity.

Small businesses are suffering despite impressive numbers

However, Yao noted that while companies are still hopeful for 2026, their confidence has dropped below normal levels. The National Bureau of Statistics showed that large enterprises are leading the recovery, as their PMI jumped to 50.8, 1.5 points higher than the month before. Medium-sized firms edged up to 49.8, but that’s still below the growth line.

Small businesses are still shrinking, with their index dropping to 48.6, a 0.5 point fall from November. Markets didn’t react with much cheer, as the Hang Seng index in Hong Kong dropped 0.83%, while the CSI 300 on the mainland rose 0.33%. Signals remain mixed, as investors watch closely for more signs of long-term momentum. The numbers come just days after the central bank decided to leave loan prime rates unchanged.

This comes as the economy continues to struggle with weak demand and a housing sector mess. November’s retail sales and industrial output came in below forecasts. Even fixed asset investment fell, another sign the recovery still has holes. Meanwhile, Beijing is also trying to balance currency pressures. The yuan is allowed to rise slowly, which keeps trading partners calm and blocks fast inflows of speculative cash.

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The development comes as two leading chatbot companies in China recently filed for IPOs in Hong Kong. According to reports, the newly proposed measures that were announced on Saturday will apply to AI products or services that are offered to the public in China that simulate human personality and engage users emotionally via texts, images, audio, or video.

China wants to protect minors from self-harm

According to the draft rules that were released on Saturday by the Cyberspace Administration, these are targeted at what it has termed “human-like interactive AI services,” as per CNBC’s translation of the Chinese-language document. The draft rules have several proposals. For example, AI chatbots cannot generate content that encourages self-harm or suicide, engage in verbal violence, or engage in emotional manipulation that can damage users’ mental health.

In addition, AI chatbots are not supposed to create obscene or violent, or gambling-related content. According to the draft rules, if a user proposes suicide, the AI company is supposed to have a human who takes over the conversation and immediately contacts the user’s guardian or a designated individual. The draft rules also propose that minors have guardian consent for emotional companionship use, with time limits on usage.

Under the new rules, AI platforms are expected to decide if a user is an adult or a minor even if they do not disclose their age. In the event of doubts, platforms must apply settings for minors, while allowing for appeals. Once finalized, these rules would mark the world’s first attempt to regulate AI with human or anthropomorphic characteristics, according to NYU School of Law professor Winston Ma.

These developments come as businesses have rapidly developed AI companions and digital celebrities. When comparing this with China’s 2023 generative AI regulation, Ma opined that this version “highlights a leap from content safety to emotional.” The proposals come as two Chinese AI chatbot startups, Z.ai and Minimax, have this month filed for initial public offerings (IPOs) in Hong Kong.

Minimax is best known for its Talkie AI app that lets users chat with virtual characters. According to CNBC, the app and its domestic Chinese version, known as Xingye, accounted for more than a third of the firm’s revenue in the first three quarters of the year, with an average of over 20 million monthly active users during that time.

As for Z.ai, which is also known as Zhipu, it filed under the name Knowledge Atlas Technology, but did not disclose its monthly active users. However, the AI company revealed that its technology is on about 80 million devices, including smartphones, personal computers, and smart vehicles. As previously reported by Cryptopolitan, the two AI startups, both backed by Alibaba and Tencent, are targeting to go public in early January next year on the Hong Kong Stock Exchange.

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