US firms pumping billions into China's AI sector

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U.S. investors were involved in at least 37% of all investment in China's artificial intelligence, or AI, sector between 2015 and 2021, according to a new report.

Georgetown University's Center for Security and Emerging Technology found that $40.2 billion of the total money raised by all Chinese AI companies over this time period had U.S. backing. However, the center couldn't determine what percentage of that amount came from U.S. investors or investors abroad.

The money went to 251 Chinese AI companies, and 91% of the U.S. investment came as venture capital to earlier-stage businesses.

Chinese President Xi Jinping attends a commendation ceremony for role models of the Beijing Winter Olympics and Paralympics at the Great Hall of the People on April 8 in Beijing. An Australian man provoked anger from supporters of Xi by holding a sign at a Sydney marker insulting the communist leader. (AP Photo/Ng Han Guan)

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"Some of the largest investments include Goldman Sachs' solo investment in 1KMXC, an AI-enabled robotics company, as well as an investment by three U.S.-based [venture capital] firms in Geek+, an autonomous mobile robot company," the report stated.

U.S. investments in Chinese AI companies have undergone scrutiny in recent years as China seeks to use AI for not only civilian but also military applications. Analysts believe AI will play a central, "game-changing" role in China's military innovation and future warfare strategy.

U.S. investments into China's AI sector were especially valuable. While U.S. investors participated in only 17% of all global transactions made, those transactions accounted for 37% of the total funding, the report found.

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And even though U.S. investments in the China's AI sector are small compared to those of Chinese investors, their benefits can have profound implications.

"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 says. "Earlier stage [venture capital] 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."

Beyond potentially benefiting the military, another point of concern with U.S. investments in the Chinese AI sector is the influence exerted on China-based companies by the ruling Communist Party.

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Chinese companies "are required to establish CCP [Chinese Communist Party] cells in their operations and support CCP security agencies," according to the China Task Force report, a major project conducted by members of Congress in 2020. "The CCP embeds its members in every company and organization."

U.S. officials have also said Chinese espionage costs the U.S. upwards of $600 billion a year in stolen intellectual property.