United States (US) firms poured billions of dollars into Chinese artificial intelligence (AI) companies between 2015 and 2021, accounting for 37% of all investment transactions in that sector.
This is according to a report released by Georgetown University’s Center for Security and Emerging Technology (CSET).
According to the report, 91% of the observed US investment transactions into Chinese AI companies during the covered period came at venture capital investment stages, such as angel, seed and pre-seed.
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The report came out amid growing scrutiny of US investments in AI, quantum and semiconductors, as the US government is preparing to tighten lid on outbound investments into Chinese tech companies.
The Biden administration is expected to release an executive order curbing some US investments in sensitive Chinese tech industries, as hawks in Washington blame American investors for transferring capital and vital knowledge to Chinese tech companies that could help Beijing’s military capabilities.
Experts say curbing China’s ability to use foreign investment especially in emerging technologies like AI, quantum computing and electronics has become an increasing focus for the US government’s efforts to decouple from Beijing amid growing bipartisan hawkishness on China.
167 US investors involved
According to the report, the transactions amounted to $40.2 billion in investments or 37% of the total raised by Chinese AI firms in the past six-year period.
It says 167 US investors were involved in the 401 transactions. That is about 17 percent of the investments into the Chinese AI companies during the six-year period.
According to the report, Qualcomm Ventures and Intel Capital were involved in 13 and 11 investments in Chinese AI companies respectively.
But they were outpaced by GGV Capital which led US firms with 43 total investments in the Asian country.
The report also shows US investor GSR Ventures invested alongside China’s iFlytek Co Limited in a Chinese AI company after the speech recognition firm was added to a trade blacklist.
Silicon Valley Bank and Wanxiang American Healthcare investments group made investments in Chinese AI firms alongside China’s Sensetime before the powerhouse in facial recognition technology was added to the same trade blacklist. Reuters reports that the two companies were added to the blacklist, which hinders them from receiving US tech exports in 2019 for alleged human rights violations related to the repression of Uighur Muslims.
According to the report, other large investments include Goldman Sachs’ solo investment in 1KMXC, an AI enabled robotics company as well as three US based VC firms in Geek+, an autonomous mobile robot company.
Only one Chinese AI company that received funding from the US investors is involved in developing AI applications for military or public safety uses, according to CSET.
US executive order “strangling”
The CSET report says while the US outbound investment into Chinese firms is limited, the transactions translate to something bigger than what meets the eye.
“Such financial activity, commercial linkages and the tacit expertise that transfers from US based funders to target companies in China’s booming AI ecosystem carry implications beyond the business sector,” reads part of the report.
CSET further suggests that earlier stage VC investments in particular can provide tangible benefits beyond capital, including mentorship and coaching, name recognition and networking opportunities.
“As such, US outbound investment in Chinese technology, and particularly AI, merits additional attention and tracking,” added CSET.
Hans Nicholes, the author of Axios Sneak Peek earlier this year wrote that the Biden administration is leaning towards making its executive order on US investments in China more targeted than was previously suggested.
Imposing restrictions on companies and investors willing to develop or support Chinese projects will only result in another escalation of the US-China relationship.
Nicholes added the war in Ukraine, supply chain disruptions caused by Covid 19 pandemic and China’s more aggressive behaviour in the Western Pacific has led to a new bipartisan consensus that the US should do more to choke off China’s military and technological growth.
As such, the Biden administration has taken a number of steps to check Chinese ambitions in AI and quantum computing with the aim of slowing the development of China’s military capabilities.
In October last year, the US government imposed restrictions on the kind of semiconductor technology and equipment that can be shared with China.
Analyst and director of the AI governance project with the Center for Strategic Studies Gregory Allen described the new policy as choking and “with an intent to kill.”
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