The Promise and Perils of China's Regulation of Artificial Intelligence

Abstract

In recent years, China has emerged as a pioneer in formulating some of the world’s earliest and most comprehensive rules concerning algorithms, deepfakes, and generative artificial intelligence (AI) services. This proactive intervention has left the impression that China has stood at the forefront as a global leader in regulating AI. Yet this perception put too much emphasis on the law on paper while overlooking the country’s intricate institutional dynamics. The Chinese government simultaneously acts as a policymaker, an investor, a supplier, a customer and a regulator in the AI sector. Given its extensive and deep involvement in the AI ecosystem, the government lacks a strong commitment to regulate the industry. Factors such as the intense US-China tech rivalry and the escalating chip embargo on Chinese AI firms further diminishes the government’s incentive to impose strict regulation. Meanwhile, the current downturn in the Chinese economy and low market confidence impose further constraints on the government’s actions. Consequently, despite maintaining strict information control over public-facing AI services, China’s overall approach to AI regulation has been markedly business-friendly. Recent legislative measures, such as the interim measures to regulate generative AI and several local AI legislations, offer little protective value to the Chinese public. Instead, these laws have primarily served as an enabler by sending a strong pro-growth signal to the industry while attempting to coordinate various stakeholders to accelerate technological progress. As evidenced by its permissive stance over the abusive use of facial recognition technology, Chinese regulators have favoured a light-touch approach to AI regulation in practice. Similarly, Chinese courts are trying to prop up the AI industry, as demonstrated by the Beijing Internet Court’s decision to grant copyrights in an AI-generated image. China’s strategic lenient approach to regulation may therefore offer its AI firms a short-term competitive advantage over their European and U.S. counterparts. However, this leniency risks creating potential regulatory lags that could escalate into AI-induced accidents and even disasters. The dynamic complexity of China’s regulatory tactics therefore underscores the urgent need for increased international dialogue and collaboration with the country to tackle the safety challenges in AI governance.

Keywords: artificial intelligence, AI, generative AI, China, regulation, governance, risks, facial recognition, copyright, AI safety, chips, semiconductors, tech war

JEL Classification: k23