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Presented By

* Tech
* Artificial Intelligence
* How China’s New AI Rules Could Affect U.S. Companies

HOW CHINA’S NEW AI RULES COULD AFFECT U.S. COMPANIES

Baidu's "ERNIE Bot" artificial intelligence large model booth at the 2023 World
Artificial Intelligence Conference in Shanghai, China, July 6, 2023.
CFOTO/Future Publishing—Getty Images
By Will Henshall
September 19, 2023 10:22 AM EDT

Soon after China's artificial intelligence rules came into effect last month, a
series of new AI chatbots began trickling onto the market, with government
approval. The rules have already been watered down from what was initially
proposed, and so far, China hasn’t enforced them as strictly as it could,
experts say. China’s regulatory approach will likely have huge implications for
the technological competition between the country and its AI superpower rival
the U.S.

The Cyberspace Administration of China’s (CAC) Generative AI Measures, which
came into effect on Aug. 15, are some of the strictest in the world. They state
that the generative AI services should not generate content “inciting subversion
of national sovereignty or the overturn of the socialist system,” or “advocating
terrorism or extremism, promoting ethnic hatred and ethnic discrimination,
violence and obscenity, as well as fake and harmful information.” Preventing AI
chatbots from spewing out unwanted or even toxic content has been a challenge
for AI developers around the world. If China’s new regulations were maximally
enforced, then Chinese AI developers could find it difficult to comply, some
analysts say.

Attorney General Garland says the Justice Dept. Will Not Back Down or be
Intimidated Attorney General Garland says the Justice Dept. Will Not Back Down
or be Intimidated
Watch More

Chinese regulators are aware of this issue, and have responded by defanging some
of the regulations and taking a lax enforcement approach in an effort to strike
a balance between controlling the flow of politically sensitive information and
promoting Chinese AI development, experts say. How this balance is struck will
not only impact Chinese citizens’ political freedoms and the Chinese AI
industry’s success but it will also likely influence U.S. lawmakers’ thinking
about AI policy in the face of a brewing race for AI dominance.

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REGULATORY RELAXATION

At the end of August, the CAC approved the release of eight AI chatbots,
including Baidu’s Ernie Bot and ByteDance’s Doubao.

A version of the regulations published in July was less strict than the draft
regulations published for comment in April. The CAC made three key changes, says
Matt Sheehan, a fellow at The Carnegie Endowment for International Peace.

First, the scope was narrowed from all uses of generative AI to just
public-facing uses, meaning internal uses are less strictly regulated. Second,
the language was softened in multiple places. For example, “Be able to ensure
the truth, accuracy, objectivity, and diversity of the data,” was changed to
“Employ effective measures to increase the quality of training data, and
increase the truth, accuracy, objectivity, and diversity of training data.”
Third, the new regulations inserted language encouraging the development of
generative AI, whereas before the regulations were solely punitive.

The CAC made the regulations more permissive, partly in reaction to the poor
health of the Chinese economy, according to Sheehan, whose research focuses on
China’s AI ecosystem. Additionally, a public debate—including think tank and
academic researchers, government advisors, and industry—concluded that the rules
were too harsh and could stifle innovation.

FLEXIBLE ENFORCEMENT

Once regulations are finalized, their enforcement is at the discretion of
authorities, and is often more arbitrary and less consistent than it is in the
West, according to Sihao Huang, a researcher at the University of Oxford who
spent the past year studying AI governance in Beijing.

“When we look at rules for recommendation algorithms that were published before,
or deep synthesis, or the CAC cybersecurity laws—they are enforced when the CAC
wants to enforce them,” says Huang. “Companies are on a pretty long leash, they
can develop these systems very ambitiously, but they just need to be conscious
that if the hammer were to come down upon them, there are rules that the
government can draw on.”

Haung says that whether the CAC enforces the regulation often depends on
“whether the company is in good graces with the governments or if they have the
right connections.” Tech companies will also often try to expose vulnerabilities
in each other’s products and services in order to incite government action
against their competitors, and public pressure can force the CAC to enforce the
regulations, he says.

“China is much more willing to put something out there, and then kind of figure
it out as they go along,” says Sheehan. “In China, the companies do not believe
that if they challenge the CAC on the constitutionality of this provision
they're gonna win in court. They have to figure out how to work with it or work
around it. They don't have that same safety net of the courts and independent
judges.”

Read more: Column: China Is Striking Back in the Tech War With the U.S.

THE U.S. DEBATE OVER REGULATION AND COMPETITION

China hawks warn that the U.S. risks falling behind China in the competition to
develop increasingly powerful AI systems, and that U.S. regulation might allow
China to catch up.

Huang disagrees, arguing that Chinese AI systems are already behind their U.S.
equivalents, and that the strict Chinese regulation compounds this disadvantage.
“When you actually use Chinese AI systems… their capabilities are significantly
watered down, because they're just leaning on the safer side,” he says. The poor
performance is a result of content filters that block the system from answering
any prompts remotely related to politics, and “very aggressive fine tuning,” he
says.

“Chinese companies are going to have way higher compliance burdens than American
companies,” agrees Sheehan.

Jordan Schneider, an adjunct fellow at the Center for a New American Security, a
military affairs think tank, says that the current crop of Chinese chatbots are
behind their U.S. competitors in terms of their sophistication and capabilities.
“These apps are maybe GPT-3 level,” says Schneider. But Schneider points out
that GPT-3, a language model developed by OpenAI, is only around two years old.
“That's not like a huge gap,” he says. (OpenAI’s most advanced publicly
available AI system is GPT-4.)

Schneider also emphasizes that it has proved easier to control the outputs of
chatbots than developers and policymakers—including those in China—originally
feared. Aside from the concerning flaws revealed when Microsoft launched its
Bing AI chatbot, there haven’t been many other problems with U.S. companies’ AI
chatbots going rogue, he says. “American models are, by and large, not racist.
Jailbreaking is very difficult and it's patched very quickly. These companies
have broadly been able to figure out how to make their models conform to what is
appropriate discourse in a Western context. That strikes me as broadly a similar
challenge [to what] these Chinese firms have [faced].” (Language models still
exhibit issues such as hallucinations—a term for inventing false information).

Because of this, Schneider argues that the tradeoff between political stability
and promoting development is overstated. In future, he says, Chinese tech firms
will continue to argue successfully for regulatory leniency if they can make the
case that they are falling behind. Still, Scheider says that, even for the
hawks, some regulation will be required to prevent any public backlash against
AI if the technology rapidly starts to negatively affect people’s day-to-day
lives, such as through the automation of jobs.

Sheehan agrees. “We should not count on these regulations absolutely smothering
China's AI ecosystem. We should look at them and realize that Chinese companies
have high regulatory burdens, and they're still probably going to be
competitive,’ says Sheehan. “To me, that's a signal that we could also impose
some regulatory burdens on our companies, and we could still be competitive.”

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Write to Will Henshall at will.henshall@time.com.

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