Investing.com-- Hong Kong shares of Baidu Inc (NASDAQ:BIDU) slid as much as 10% on Monday after the South China Morning Post reported that the technology giant’s flagship Ernie artificial intelligence was used in testing by the People’s Liberation Army.Baidu’s shares (HK:9888) fell 7.9% to HK$104.60 by 21:18 ET (02:18 GMT), after falling as far as 10% earlier in the session. The stock was headed for its worst day in nearly two years.The broader Hang Seng index rose 0.1%.The South China Morning Post (SCMP) reported that a research laboratory associated with the People’s Liberation Army (PLA) Strategic Support Force had tested an experimental AI system on Baidu’s Ernie and peer IFlyTek’s Spark large language models.Baidu told the SCMP that the company had no affiliation with the laboratory, and that any version of the Ernie bot used in the testing was likely a publicly available version.But the report ramped up concerns that any potential affiliation with the PLA could attract sanctions from the U.S., especially as both countries explore military applications of AI.Baidu’s Ernie bot was the company’s answer to OpenAI’s ChatGPT, coming just a few months after the latter, amid a global push into large language models. Baidu had already begun monetizing the model by late-2023, logging stronger sales in the third quarter on revenue from its AI offerings.Baidu’s Chinese peers Alibaba Group Holding (NYSE:BABA) (HK:9988) and Tencent Holdings (HK:0700) had also raced to release their own offerings in 2023.But China’s AI aspirations face some headwinds, particularly from the U.S. banning the sale of key AI-linked chips to Chinese entities. NVIDIA Corporation (NASDAQ:NVDA), which is the poster-child of making chips for AI development, can no longer sell its latest chips in China.Tencent and Alibaba had warned that the ban could potentially hamper their AI development efforts. China has also hit back against the ban with sanctions of its own.