If you're not alarmed by China's tech invasion, you're not paying attention
By John Pyrovolakis - 08/31/17 02:10 PM EDT
When America is asleep at the wheel, tragedy can ensue. Like the slumbering crew that allowed the U.S.S. Fitzgerald to collide with a Japanese freighter in June, causing the death of seven sailors and severe damage to the destroyer, Washington is snoozing while China expands its access, knowledge and ownership of our technological capabilities, putting America's national security at risk.
China is methodically buying our brainpower and resources, purchasing stakes of early-stage companies that can supply critical innovation for the next-generation defense industry. From sensors to semiconductors, China is amassing American know-how that can only bring it closer to gaining military superiority.
Since 2011, Chinese money has found its way to more than 650 U.S. technology deals worth more than $18 billion. A recent Department of Defense report expresses alarm, cautioning the U.S. may be "facilitating China's technological superiority." Indeed, the China Daily recently reported China is developing a cruise missile system guided by artificial intelligence.
Beijing is a venture capital powerhouse, pumping more than $300 billion into hundreds of state-backed investment funds whose mission is to buy into western companies that show promise in important technologies, like artificial intelligence and robotics, that will be playing evermore critical roles in defining military and economic strength.
China's deep pocketbook is particularly attractive to U.S. tech startups confronting what entrepreneurs call the "valley of death" — the challenge of surviving the dry zone following initial funding until a fledgling company begins generating real revenues. During these days of negative cash flow, additional funding can be hard to come by since private venture capitalists want to limit their risk as they maintain an eye on a profitable exit. Chinese state-backed venture funds, on the other hand, are flush with cash and not terribly concerned with generating a profit.
On top of its massive venture capital activity, China is on the verge of becoming the globe's leading spender on research and development, furthering its quest toward technological and military dominance.
How is Washington responding to these looming threats? Our leaders are distracted. Congress has spent months trying to thread repeal-and-replace proposals through the healthcare policy needle. U.S. foreign policy is rubbernecking at North Korean leader Kim Jong Un's saber-rattling. What's more, the entire capital is obsessed with the investigation into Russian meddling in U.S. elections and whether the president's campaign colluded in any way.
As a consequence, the Committee on Foreign Investment in the United States (CFIUS), an interagency task force charged with ensuring foreign investments in American companies do not pose a national security threat, is virtually off-duty. Staff positions at CFIUS have yet to be filled and Commerce Secretary Wilbur Ross Wilbur Louis RossThe Hill's Morning Report - Presented by JUUL Labs - House to vote to condemn Trump tweet House poised to hold Barr, Ross in contempt Ross in Trump's crosshairs after census loss: report MORE, among the cabinet secretaries who leads CFIUS, recently conceded that the committee is "weak".
It's high time for Washington to get serious about protecting intellectual property that is essential to national security. CFIUS should be fully staffed, operational and aggressive in monitoring Chinese investments into U.S. companies.
The lure of Chinese capital must be dimmed. That imperative requires the United States to more actively support technology startups and increase research and development spending, not cut it as the administration has proposed. The National Science Foundation, whose funding accounts for over 200 Nobel Prizes (more than China, Brazil, Russia and India combined), is slated for an 11-percent funding reduction under the president's budget proposal.
Congress should not permit such a financial assault on the scientific work that truly makes America great. While the proposed military budget appears to provide a healthy $7.6-billion boost to the Pentagon's research, development, training and evaluation account, as the America Enterprise Institute points out, a significant portion of that is an accounting shift that will cover payroll for 10,000 members of the Air Force.
China hacking, strategic investment in foreign tech firms, and state rules undercut US innovation https://t.co/cxgsMjv2HY
— Patrick Cronin (@PMCroninCNAS) August 12, 2017
Accounting gimmicks should not borrow funds from critical research projects. Budgets for scientific research in both the public and private sectors should grow if we hope to maintain military and technological superiority advantages over countries that seek to challenge us.
More U.S. businesses, grown from taxpayer-funded research and development grants that spur innovation, are looking toward China for additional funding in response to the domestic valley of death, particularly in areas that are important to our military future but not attractive to domestic venture capital.
American universities own intellectual property developed with taxpayer dollars by virtue of the Bayh-Dole Act of 1980, but they currently have little incentive not to license that intellectual property to our wealthy adversaries. The law needs to be updated to address the rising Chinese threat so we do not subsidize our own military and economic decline with taxpayer dollars.
Maintaining American ownership of technological innovation is so important that Washington should be willing to create oases in the valley of death for tech startups whose work is related to national security. It can be done as part of tax reform. Why not allocate a certain percentage, perhaps 20 percent, of repatriated technology company cash to support fledgling tech ventures engaged in such businesses?
This approach could serve as an incentive for innovative companies to dedicate more resources to projects that impact national security, rather than the latest trends in social media that deliver attractive returns for venture capitalists but contribute little to our military strength.
Similarly, revisions to the EB5 program, which permits immigrants to become legal U.S. residents by investing at least $1 million to finance a business that will employ at least 10 Americans, could make it easier for foreign direct investment to support innovation important to our nation's military.
It's time for America to wake up, vigilantly maintain ownership of its intellectual property and provide support for technological innovation at a level that fully recognizes how essential technology entrepreneurs are to the future of our national security.
John Pyrovolakis is the founder and CEO of Innovation Accelerator Foundation, which brings together innovation experts, best-in-class innovation practices and game-changing technology platforms to help build upon the United States' innovation competitive advantage.
The views expressed by contributors are their own and not the views of The Hill.
Tags Wilbur Ross Venture capital Startup company Funding of science Innovation United States trade policy Committee on Foreign Investment in the United States Entrepreneurship Private equity Innovation economics
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