Donald Trump’s Assistant for Science and Technology, Michael Kratsios, has accused China’s Moonshot AI of creating its head-turning Kimi K3 model distilling Anthropic’s Fable.

Kimi K3 is 2.8-trillion-parameter open-weights model of such impressive quality that its mere existence suggests Chinese AI researchers aren’t far behind their US rivals. Moonshot AI released it on July 16, and not long afterwards the value of US AI stocks sank as investors worried the model could damage their businesses.

Kratsios used a Xeet to allege that Kimi K3 is the result of distillation – a technique that involves bulk queries of one model to train another  – rather than innovation.

“We have information that Moonshot AI distilled Anthropic’s Fable for the development of its K3 model,” he wrote, adding the assertion that the Chinese company “developed a sophisticated internal platform to conduct large scale distillation against U.S. models, allowing them to quickly switch between multiple methods of access to avoid detection.”

Kratsios also accused the company of gaining access to servers packing Nvidia’s GB300 accelerator – a model the US does not allow to be sold in China – and of accessing GB300s running in Thailand.

Kratsios added his view that the USA “strongly supports the free and fair development of AI, including a thriving competitive ecosystem that spans frontier models, specialized systems, open-source frameworks, and open-weight models.”

He also noted that AI distillation can be a legitimate technique when “used to create smaller, more efficient models.”

“However, large-scale, covert industrial distillation aimed at stealing proprietary U.S. technology and undermining American research is unacceptable.”

US Treasury Secretary Scott Bessent weighed in to the matter with a Xeet of his own that opens “We support open-source AI and the innovation it unlocks.”

If you feel like there’s a “but…” coming, you’re right.

“But open source is not open season on American IP,” Bessent wrote. “When [People’s Republic of China] PRC firms conduct covert, industrial-scale distillation attacks that cross the line into IP theft, sanctions and Entity List designations will be on the table.”

The US has already sanctioned just about every major player in China’s tech ecosystem, but that hasn’t prevented the nation from growing enormous and sophisticated tech companies. Nor have those sanctions stopped Chinese firms from creating “evasion routes” to secure access to banned tech through illicit means, or by using the grey market.

One evasion route is renting GPU farms outside China to run AI workloads, to access hardware that’s not available in the Middle Kingdom.

Anthropic accused Moonshot AI of distillation in February 2026 and said its Chinese peers DeepSeek and MiniMax also used the technique.

The US and other nations have often accused China of industrial espionage. Beijing always denies such allegations.

Whatever means China uses to develop technology, think tank the 2025 Australian Strategic Policy Institute’s Critical Technology Tracker rates the Middle Kingdom as the leader in 66 of the 74 technologies it rates. ®