New EU AI rules face rising costs for Chinese tech companies

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The European Union (EU) is set to implement the world's first comprehensive artificial intelligence (AI) regulation on August 1. The new rules are expected to significantly increase compliance and assessment costs for Chinese technology companies operating in the EU-27 member states. Industry experts point out the challenges of these regulations, especially in terms of innovation.

The new rules and their impact

The Artificial Intelligence Act was passed by the European Parliament in March and approved by the Council of the EU in May. The law aims to protect fundamental rights, democracy, the rule of law and environmental sustainability from risky AI applications, while at the same time fostering innovation and establishing Europe as a leader in AI technologies.

Some Chinese AI companies, such as Hong Kong-based Dayta AI, are already preparing for the financial impact of these regulations. Patrick Tu, co-founder and CEO of Dayta AI, expects the company's research and development (R&D) and testing costs to increase by 20 to 40 percent due to compliance and assessment requirements, which will include additional documentation, audits, and technical measures.

Balancing regulation and innovation

The introduction of the AI ​​law reflects a global push to establish AI regulation amid the rise of generative AI (GenAI) services – algorithms that create new content such as voice, code, images, text or video in response to short prompts. Despite concerns about overregulation, Tanguy van Overstraeten, partner at Linklaters and head of the law firm's Technology, Media and Telecommunications (TMT) group in Brussels, believes the EU's goal is to create an environment of trust.

The AI ​​Law categorizes AI technologies based on their potential risks and impacts, covering prohibited activities, high-risk systems, transparency obligations, governance, post-market surveillance, information sharing, and market monitoring. The regulation also requires member states to set up regulatory sandboxes for real-world testing, where companies can test AI applications within set boundaries for up to 12 months.

Violations of certain AI practices could result in administrative fines of up to €35 million (US$38 million) or up to 7% of the violating company's total annual worldwide turnover, whichever is greater.

Comparison of global regulations

Dayta AI's Tu noted that the EU's focus on data quality will ultimately lead to better performance and fairness in AI solutions. He also compared the EU's user rights-focused approach to regulations in China and Hong Kong, which he believes are more focused on enabling technological advancements and aligning them with government priorities.

China's GenAI regulations, which came into force on August 15 last year, require AI service providers to adhere to core socialist values ​​and not create content that threatens national security or promotes terrorism, extremism or other harmful ideologies. Such regulations could confuse multinational companies that are unaware of the requirements, said Alex Roberts, a partner at Linklaters in Shanghai.

Roberts also noted that China's AI regulations are state-driven, while EU regulations focus on user rights. Despite these differences, he believes the core principles of both regulatory frameworks are similar, including transparency, data protection, accountability, and providing clear guidance on AI products.

China's cabinet, the State Council, has included a comprehensive AI law in its legislative plans for 2023 and 2024, but no bill has yet been proposed. Other Asian countries are also working on regulating AI, such as South Korea, whose draft “Act on the Framework for Promoting the AI ​​Industry and Establishing Trustworthy AI” is still under discussion.

Roberts concluded that governments in the Asia-Pacific region are increasingly looking to EU AI regulations as a model for their own legislation, a trend that allows companies to insist on more consistent and harmonized rules across markets.



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