EU's Groundbreaking AI Act Takes Effect, Pushing Global Compliance for Chinese Firms

On August 1st, the European Union's Artificial Intelligence Act (AI Act) officially came into effect. This groundbreaking legislation is the world's first comprehensive regulatory framework for artificial intelligence, marking a significant step forward in the EU's efforts to regulate the rapidly evolving AI landscape.
The AI Act was formally endorsed by the European Council on May 21st and subsequently published in the EU's official journal on July 12th. The act's provisions will be implemented in stages to provide businesses with a transition period to adapt their systems. Some of the rules are set to take effect six to twelve months after its enactment, with the majority of regulations becoming enforceable on August 2nd, 2026.
The act employs a risk-based approach to AI regulation, meaning different applications of AI will be governed based on their perceived risk levels to society. Starting from February 2025, the first set of rules, termed the "Prohibitions on certain AI systems," will come into force. These regulations will outlaw AI applications that exploit personal vulnerabilities, indiscriminately scrape facial images from the internet or CCTV footage, and create facial recognition databases without consent.
Post-August 2025, complex and widely used AI models will face new constraints, requiring all AI-generated content, such as images, audio, or video, to be clearly labeled. This measure aims to tackle concerns surrounding misinformation and electoral interference.
Additionally, the AI Act mandates strict transparency obligations for high-risk AI systems, which encompass autonomous vehicles, medical devices, loan decision systems, educational scoring, and remote biometric systems. However, the requirements for general-purpose AI models are less stringent and will take effect from August 2026.
To ensure robust enforcement, the EU will establish national regulatory bodies within its 27 member states to oversee compliance. These agencies will be granted the authority to conduct audits, request documentation, and implement corrective actions. The European AI Board will coordinate these national bodies to ensure uniform application across the EU.
Companies found in violation of the AI Act may face severe penalties, including fines of up to €35 million or 7% of their global annual turnover, whichever is higher. The EU asserts that the AI Act complements the 2018 General Data Protection Regulation (GDPR) by addressing AI-specific risks and ensuring AI systems respect fundamental public rights.
Experts believe the AI Act's enactment will create a more complex and stringent regulatory environment for Chinese AI firms aiming to expand internationally, thereby increasing compliance costs. This legislation is seen as a product liability law at its core, suggesting companies may adhere to EU standards within the EU and local standards elsewhere.
Strict regulations bring a higher level of protection. The AI Act’s emphasis on transparency and personal data protection is considered beneficial for consumers. Companies may need to allocate significant resources to meet these rigorous standards, potentially influencing their market entry strategies.
As the AI Act is phased in over the next two years, the consensus within the industry is that the compliance costs for Chinese AI firms looking to enter EU markets will inevitably rise. The challenge will be in internal adjustments to their product and compliance systems and balancing different rules across jurisdictions.
The adaptability of Chinese firms will be crucial. For businesses targeting the EU, the extraterritorial effect of the AI Act poses immense challenges, necessitating comprehensive compliance solutions. Firms must also stay updated on potential similar regulations in other markets to ensure their international operations remain legally sound.