Chinese tech firms to face higher compliance costs as EU AI Act comes to force

To abide by EU AI Act requirements Chinese firms can expect a 20-40% rise in R&D and testing costs due to additional documentation, audits, and technological measures
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With the EU’s first comprehensive AI Act coming into effect on 1 August 2024, it is anticipated that the compliance and assessment costs for Chinese tech companies operating in its 27 member states are set to increase.

The AI Act mandates requirements for technologies based on their risk levels and impact. It comprises key sections addressing prohibited practices, high-risk systems, transparency, governance, post-market monitoring, information sharing, and market oversight. The failure to comply with prohibited AI practices can result in fines of up to 35 million euros (USD38 million) or 7% of the firm’s global annual turnover, whichever is greater.

Meanwhile, last year, Beijing also introduced new GenAI regulations requiring adherence to core socialist values and prohibiting content that could threaten national security, promote violence, or harm the country’s image. With China’s regulations emphasizing on political and social stability, it can confuse with multinational compliance officers as the core values differ.

Unlike the EU’s AI the EU, which prioritizes user rights, China’s can be seen as state-driven. The former adopts a comprehensive, user-centric approach with stringent restrictions on personal data usage. In contrast, the regulations in China and Hong Kong prioritize technological advancement and alignment with government strategies.

As such, to reconcile the differences and do business in Europe, it is expected that Chinese companies will have to invest additional resources to ensure their products and services comply with cross-border regulations. Patrick Tu, CEO of Dayta AI, noted that EU regulations will likely increase R&D and testing costs by 20-40% due to extra documentation, audits, and technological measures.