Chinese Intellectual Property Theft Zeroes in on AI and Advanced Chips

While Chinese intellectual property theft has plagued the United States and the West for decades, recent efforts by the Chinese Communist Party (CCP) to zero in on artificial intelligence (AI) and advanced microchips could prove particularly disastrous for American economic and national security. Congress must act decisively to stay ahead of Beijing.

According to a shocking new White House report, CCP-backed entities are now stealing AI labs’ intellectual property on an industrial scale. “Leveraging tens of thousands of proxy accounts to evade detection and using jailbreaking techniques to expose proprietary information, these coordinated campaigns systematically extract capabilities from American AI models, exploiting American expertise and innovation,” Michael Kratsios, director of the White House Office of Science and Technology Policy, wrote in a memo about the report.

The U.S. State Department has also issued a “global warning” about Chinese AI theft, specifically by Chinese AI startup DeepSeek. Kratsios explained in his memo that Chinese entities primarily use “distillation attacks,” where Chinese companies use American AI models like Claude or Gemini to build datasets that replicate how the systems behave – thus allowing them to create models that mimic American models at a fraction of the cost.

China is also attempting to smuggle out the advanced chips that power AI models. The Trump administration has made it a priority to ensure that the latest chips do not fall into the hands of the CCP in order to keep American tech one step ahead of Chinese tech.

Yet during a recent hearing of the Congressional Select Committee on China, Chairman John Moolenaar estimated that China has managed to smuggle tens of thousands and possibly hundreds of thousands of chips out of the United States, affirming Kratsios’s allegations of an “industrial scale” theft operation. One case in particular that Moolenaar pointed to involved $2.5 billion worth of product, the largest export control violation in U.S. history. In that instance, co-conspirators Yih-Shyan Liaw, Ruei-Tsang Chang, and Ting-Wei Sun, all employees at American tech company Super Micro Computer, were charged with illegally diverting Nvidia AI chips to China.

According to the Department of Justice, the trio understood that what they were doing violated the law, but the promise of a multimillion-dollar payout lured them in. The conspirators masked their intentions by listing purported Thai buyers who served as intermediaries for Chinese companies. All three were charged in March of this year.

Another smuggling operation routed chips through a Taiwanese company, deceiving U.S. inspectors with physical replicas while the genuine chips had already reached China. To pull off the deception, the smugglers went to remarkable lengths, even using a hair dryer to swap out label packaging, then placing the replicas in the original boxes.

That case comes on the heels of another from 2024 in which Google employee Linwei Ding stole more than 2,000 pages of trade secrets and sold them to Chinese companies with the intent of helping them match the United States in computing power. According to an affidavit from the Department of Justice, while still on Google’s payroll, Ding applied for a Chief Technology Officer role at a Chinese company and launched his own startup in Shanghai, boldly claiming it could build state-of-the-art supercomputers.

A former Chinese military intelligence officer reviewed the case, noting the method mirrored classic Beijing intelligence training – operating in plain sight: “The darkest place is under the candlestick.” Ding could have hidden files, but instead, he used Google’s tools, blending in carefully. “His handlers guided every move,” the officer observed.

Ding was ultimately convicted by a federal jury in San Francisco earlier this year on seven counts of economic espionage and seven counts of theft of trade secrets.

In another emerging area of concern, China is also attempting to corner the market on less advanced chips. AI expert Dmitri Alperovich called this a “new Strait of Hormuz” during a congressional hearing, describing it as a looming strategic threat. Beijing may soon control a vast supply of affordable chips crucial to global demand.

“China is pursuing foundational chip dominance using state-backed, non-market policies like those in steel, solar, and electric vehicles,” he noted, stating that China aims to capture more than half of the global AI chip market by 2030.

To understand why China pursues American innovation with such relentless determination, it is important to understand that competition with the United States is central to the CCP’s identity.

“If China fails to achieve technological breakthroughs, its leaders become vulnerable,” said Dr. Shufen Yóulǎn, a retired economist who lectured at the Party’s schools. The realization that the Party cannot outpace the U.S. in tech would be a devastating blow. Xi Jinping’s authority has already been shaken by public humiliation at the hands of former military commanders who dismissed his calls to prepare for war against the West as reckless.

“The party boasted about matching progress for years, but now even that illusion is fading,” Dr. Yóulǎn stated. “Haunted by the fear of losing its propaganda edge, the party manipulates or steals American intellectual property and claims it as a victory for Xi’s New Era.”

Professor Jürgen Everhart, who was a German diplomat in China in the 1990s, said that “Deception is the CCP’s lifeblood.”

But four bills now making their way through Congress could help address the threat. The MATCH Act would unite U.S. allies in coordinated bans on AI technology. The AI OVERWATCH Act would demand export licenses for high-risk countries. The SCALE Act aims to ensure U.S. exports keep China perpetually behind. Finally, the Remote Access Security Act would let the U.S. control all advanced AI technology by offering it exclusively through the cloud. “That would shatter the CCP’s backbone,” said one Chinese dissident who has studied the proposed laws.

The United States and the world may now be reaching an inflection point on AI. The crucial question that will be answered in the coming months and years is which great power will control the future that AI is building.

Ben Solis is the pen name of an international affairs journalist, historian, and researcher.