A recent article by Reuters caught my eye. it discusses the impact of Chinese investments in Silicon Valley, particularly in new High-tech areas, such as drones, and next generation Artificial Intelligence (AI) and Cyber Security. The Article, "China's penetration of Silicon Valley creates risks for startups" by Heather Somerville, appeared in the digital edition of Reuters News on June 28th. You can read it here.
There is a lot to learn from Somerville's article, not the least of which is that Silicon Valley is increasingly looking to countries such as China, for funding from simple investments to becoming major players in technology areas the United States needs to keep secure as long as possible.
The United States is already the 'beneficiary' of hacking, theft of intellectual secrets, and other malicious actions by the Chinese, as they attempt to extend their capabilities and interests throughout the world. On the one side, a nation as large as China, with its own unique requirements for connectivity and protection, clearly demonstrates a need to intersect with other world leaders in technology. Together, the advances to be made could be astronomical.
Conversely, China has also demonstrated amply that at least part of its mission to advance has been delegated to its armed forces and its intelligence community. In that regard, standard practice has become a concentrated effort through both formal and informal organizations to mimic, and even improve upon American intelligence gathering processes to achieve their goals.
In 2012, Peter Mattis published a seminal article on the capabilities of Chinese Intelligence Agencies in the Journal Studies in Intelligence, titled "The Analytic Challenge of Understanding Chinese Intelligence Services". That article can be found here. In that article, Mattis indicates the Chinese Intelligence effort is much like our own, saying in part, "In large measure, this perception stems from Chinese attempts to acquire, legally and otherwise, Western technology information to support Chinese modernization and economic priorities. These efforts have been equated with Chinese intelligence collection and have been labeled the “mosaic” or “grains of sand” approach."
"Chinese intelligence, it has been argued in this context, has four basic tenets:
• Chinese intelligence focuses on ethnic Chinese as sources; • It relies on amateur collectors rather than professional intelligence officers;
• It does not use intelligence tradecraft familiar to Western services;
• It pursues high volumes of low-grade (if not entirely unclassified) information."
"This view falls down on both conceptual and empirical grounds. Conceptually, both US and Chinese analysts describe intelligence in similar terms—a specialized form of knowledge for reducing uncertainty during decision making. Empirically, the cases linked to the Chinese intelligence services—not simply the illegal activities of Chinese nationals or companies—demonstrate that professional Chinese intelligence officers use familiar tradecraft in formalized intelligence relationships with their sources. Additionally, cases are not limited to ethnic-Chinese whatever their nationality."
What Mattis expressed some years ago is still true today. The Chinese have, in the past used various means to secure data and technology, and they continue to do so today. A newer means is the funding of venture capital groups to 'buy into' American firms early in their startup mode to be ready for technology acquisition.
One of these Danhua Capital, cited in the Somerville article, has been described in Asian Age as a firm which "..has invested in some of Silicon Valley’s most promising startups in areas like drones, artificial intelligence, and cybersecurity. The venture capital firm is based just outside Stanford University, the epicenter of US technology entrepreneurship."
"Yet it was also established and funded with help from the Chinese government. And it is not alone. More than 20 Silicon Valley venture capital firms have close ties to a Chinese government fund or state-owned entity, according to interviews with venture capital sources and publicly available information."
"While the US government is taking an increasingly hard line against Chinese acquisitions of US public companies, investments in startups, even by state-backed entities, have been largely untouched."
While the US Government has finally started to rein in some of these firms, beginning to recognize the dangers inherent in higher levels of Chinese investment in American high-tech, it remains to be seen what they will actually do to reduce their influence. The regulation the Government proposes still does nothing for direct espionage, pilfering, duplication or outright theft of American technology. The Chinese are merely finding other ways to have their foot in the marketplace.