US Firms Investing Billions of Dollars in China’s AI Sector: Report

AI security cameras with facial recognition technology are seen at the 14th China International Exhibition on Public Safety and Security in Beijing on Oct. 24, 2018. Nicolas Asfouri/AFP/Getty Images

U.S. companies were involved in at least 37 percent of the total investment transactions in China’s artificial intelligence (AI) sector between 2015 and 2021, according to a new report.

The report (pdf), published by the Georgetown University Center for Security and Emerging Technology, found that $40.2 billion in investment transactions into Chinese AI companies had U.S. backing, although it was unclear what percentage of that amount was made by U.S. investors or their overseas counterparts.

The venture capital (VC) was given to 251 Chinese AI companies, primarily at angel, seed, and pre-seed stages of investment.

There are risks with such investments, the report noted, as they’re generally accompanied by other intangible benefits in which U.S. expertise is delivered to China-based companies.

“While Crunchbase data suggests that U.S. outbound investment into Chinese AI companies is limited, such financial activity, commercial linkages, and the tacit expertise that transfers from U.S.-based funders to target companies in China’s booming AI ecosystem carry implications that extend beyond the business sector,” the report states.

“Earlier stage VC investments in particular can provide intangible benefits beyond capital, including mentorship and coaching, name recognition, and networking opportunities. As such, U.S. outbound investment in Chinese technology, and particularly AI, merits additional attention and tracking.”

US Firms Fund Chinese AI Companies

U.S. investments in China-based AI companies have come under fire in recent years because of the amount of control exercised over such companies by China’s communist regime.

The Chinese Communist Party (CCP), which rules China as a single-party state, has implemented several laws that require China-based companies to make all data in their possession available to the regime upon request.

This means that any data or technologies developed by China-based companies with U.S. backing could be directly used by the CCP to improve upon its military capabilities, in line with the regime’s “military-civil fusion” strategy.

Moreover, such investments directly fuel China’s efforts to overtake the United States as the leading technological power.

This is demonstrated by the value of the investments being made by U.S. sources into China’s AI companies. Whereas investment transactions involving U.S. funding sources only made up 17 percent of the total number of transactions made, those transactions accounted for 37 percent of the total funding value of all such transactions, according to the report.

Notably, the U.S. investments also include major funding for Chinese companies whose research could tangibly benefit the Chinese military’s pursuit of AI and autonomous systems.

“Some of the largest investments include Goldman Sachs’s solo investment in 1KMXC, an AI-enabled robotics company, as well as an investment by three U.S.-based VC firms in Geek+, an autonomous mobile robot company,” the report states.