China tech investment flying under the radar: Pentagon

China is investing in Silicon Valley start-ups with military applications at such a rapid rate that the United States government needs tougher controls to stem the transfer of some of America’s most promising technologies, a Pentagon report says.

There are few restrictions on investing in American start-ups that focus on artificial intelligence, self-driving vehicles and robotics, the report contends, and China has taken advantage. Beijing, the report says, is encouraging its companies to invest for the purpose of pushing the country ahead in its strategic competition with the United States.

In some instances, Chinese companies have made under-the-radar investments intended to dodge the oversight of a government agency, the Committee on Foreign Investment in the United States, known as Cfius. “If we allow China access to these same technologies concurrently, then not only may we lose our technological superiority, but we may even be facilitating China’s technological superiority,” the report says.

Such concerns show that China is looming in America’s rearview mirror after a decades-long campaign by Beijing to close the technological gap between the two countries. Though the race is often cast in an economic light, the Pentagon report underlines the national security threat.

In recent years, China has combined domestic subsidies with aggressive investment overseas to build its own technological know-how. A government plan, “Made in China 2025,” that proposes lavishing state funds on 10 important industries has raised concerns from American and European business groups. Meanwhile, the global semiconductor industry has been shaken by Beijing-backed investment aimed at acquiring new microchip knowledge.

The report found that increasingly sophisticated commercial technology had blurred the lines between what was available to military consumers and civilian ones. Often start-ups and leading internet companies like Facebook and Google are working on products as sophisticated as anything the military has at its disposal.

“For example, VR for gaming is at a similar level of sophistication as the VR used in simulators for our armed forces,” the report said, referring to virtual reality. “Facial recognition and image detection for social networking and online shopping has real application in tracking terrorists or other threats to national security,” the report continued, which added that much of the autonomous vehicle and drone technology of was developed using grants from the Pentagon.

In some cases, companies aided by those grants have since raised money from Chinese investors. Velodyne, for example, started developing light sensors for driverless cars after participating in a competition set up by the Defence Advanced Research Projects Agency, a unit of the Pentagon, in 2005. Since then, those sensors have been used on the United States Navy’s unmanned surface vehicles. 
 

Last summer, the company received a $150 million joint investment from Ford and the Chinese internet giant Baidu. Baidu declined to comment on the investment.

A Velodyne spokeswoman said the round represented its first outside investment. 

“The company obtained all necessary government clearances relating to the investment as part of the funding process,” the spokeswoman wrote in an email. “Notably, the investments were designed to make advanced LiDAR sensors more accessible to the broader industry, resulting in the development of safer, less expensive autonomous vehicles.”

Ashton B Carter, the former secretary of defence, commissioned the report as an urgent review of what senior Pentagon officials have considered China’s alarming penetration of Silicon Valley, particularly in deals that finance nascent technology that has military applications. 

The report found that American private industry was mostly unaware of Beijing’s efforts — many of the deals involve relatively small amounts of money — and that Washington did not have a strong understanding of the scale of the issue. 

Carter declined to comment on the final document issued to cabinet officials last month.

©2017 The New York Times News Service