For all intents and purposes this is legal. As is distillation. No justification is needed.

No its pretty realistic. Nobody is losing their sleep when ultra-wealthy thief gets robbed for their stolen possessions or money made out of those, do they.

That's generally true, but consider this:

If the consolidated (stolen) IP of millions of books remains under US LLM company control, then at the very least there's a chance of justice to be served to the creators in the future - a large lawsuit victory and change to the legal system that results in the ill-gotten gains being transferred to the original creators.

If those proprietary models are distilled by the PRC, then that will never happen, because the PRC does not care about any sort of law (including their own) and will simply never return a single cent to the original US authors.