- AI service providers: AI service providers that offer generative AI services to the public are the focus of government regulation. Companies focusing on internal application of generative AI technology are not subject to AI-specific regulatory scrutiny. However, they must still comply with Chinese data and cybersecurity laws and regulations. Given the dynamic of China’s AI landscape and the current state of compliance requirements for generative AI, providers need to expect significant further changes in the coming months and years.
- Training data: Recently adopted security requirements for generative AI services require service providers to provide two assessments on the presence of „illegal and unhealthy content“ in training data during training data collection. China sets its own rules defining „illegal and unhealthy information“: content that challenges national unity, inappropriate commentary on natural disasters and 18 other types of content.
- Large Language Models: In order for companies to provide generative AI services based on third-party large language models (LLM), it is necessary that the respective LLM is filed at China’s Cyberspace Administration (CAC). According to public filing information, no foreign LLM has been registered in China thus far. This presents an obstacle for foreign providers of generative AI whose services are built on foreign LLMs.
- Cross-border data transfer: Whether a domestic service provider in China provides generative AI services to domestic users through accessing offshore API interfaces or an offshore developer provides services directly to the public in China, cross-border data transfer (CBDT) will be involved. This triggers the relevant compliance mechanism of CBDT (i.e., standard contract, CAC security assessment).
- In summary, the differences in AI regulation in China, the EU, and the US leave MNCs questioning the viability of a coherent global AI strategy. Given regulatory developments in China, it is increasingly necessary to localize customer-facing AI tools for the Chinese market. However, regulation of AI tools for internal use is much less strict.
Sinolytics is a research-based business consultancy entirely focused on China. It advises European companies on their strategic orientation and specific business activities in the People’s Republic.