Chinese AI company Zhipu's coding assistant ZCode was caught packaging entire developer workspaces and uploading them to Alibaba Cloud without consent, triggering a security storm among developers.

The issue was discovered on September 18 by a developer who noticed a 313-megabyte encrypted file and logs showing ZCode had compressed a commercial workspace — 345.5MB across 42,411 files — and tried uploading it 564 times. The culprit was a default-on "Codebase Indexing" feature with no visible off switch.

Zhipu apologised, disabled the feature, shipped a fix, and later enabled a zero-data-retention option. But users found the uploaded data was encrypted with a backend key held only by Zhipu, so they could not verify deletion.

A briefing on October 2 said one affected enterprise had found 42,000 of its source files transmitted and demanded a written response by October 10. Compensation has been expanded three times as around 400 users sought redress.

The episode matters because AI coding tools sit inside a developer's most sensitive files. Trust, once uploaded, cannot be patched.