Chinese AI companies are systematically extracting proprietary capabilities from U.S. AI models through industrial-scale knowledge distillation. This practice forms the core of their AI development strategy, not merely a supplement. China-based firms like DeepSeek, Moonshot AI, Alibaba, MiniMax, StepFun, and Z.AI have extracted billions of tokens from U.S. frontier models. They achieve unauthorized access through various pathways, including APIs, cloud providers, and third-party aggregators. These companies use a gray market of proxies, known as "transfer stations," to bypass geographic restrictions and evade safeguards. Bulk procurement of premium subscriptions allows for cost savings in these extensive campaigns. Advanced tactics include chain-of-thought reasoning extraction and automated failover mechanisms. This systematic extraction threatens U.S. technological leadership and requires a coordinated response. U.S. AI companies are advised to implement detection and mitigation strategies. They should also deploy targeted response changes and establish cross-organization intelligence sharing. This advisory aims to alert organizations and recommend mitigations against these malicious activities.