As the former Chief Operating Officer of Netswitch Technology Management, an MDR with ASIAPAC headquarters in Hongkong and offices in Beijing and Shanghai, I can speak with some degree of authority on the Chinese threat to U.S. intellectual property and their rapidly increasing domination of cyberspace.
Anyone doing business with Chinese foreign nationals is best served through the continual prism of the PRC zeitgeist. The most respected businessmen in China are perceived to be the most duplicitous, insidious and clever when dealing with their U.S. counterparts.
Machiavellian prowess earns bonus points.
Chinese Capital Flows into the Valley
So, it shouldn’t surprise anyone that in the last few years, Chinese capital has made its way into some of Silicon Valley’s most promising startups in areas like artificial intelligence and cybersecurity. The venture capital firm DHVC or Danhua Capital is based in downtown Palo Alto, a short bike ride to Stanford (the epicenter of U.S. technology entrepreneurship) has led the charge in Chinese investment in AI/ML, AR/VR, Big Data, Blockchain, Enterprise Software and other disruptive technologies.
Global Cyberspace Domination
And when I say Chinese investment, I mean Chinese government investment because aggregating and leaving China with large sums of capital is only possible through the cooperation and blessing of the Central People’s Government and particularly the State Council Premier. As you may recall, China remains a communist country, and while not stupid enough to chant “death to America” night and day, their intent is on global cyberspace domination.
Double Dealing and Double Standards
DHVC leads the way with investments in AI, ML, Crypto and Biotech startups and more than 40 other Silicon Valley venture capital firms are connected to a Chinese government fund or a state-owned entity and continue to build portfolios with plays that create an illusion of benevolent, propitious investors joining in a rich ecosystem of investment opportunity.
While in fact, a significant portion of the technology transfer that is and should be of concern to the U.S. security establishment is happening right now and right before our eyes. We have taken an increasingly hard line against Chinese acquisitions of U.S. public companies, while largely ignoring Chinese state-backed investments in startups. We seem to be intent upon building walls around our conventional IP while welcoming known bad actors inside the vaults containing the crown jewels of U.S. innovation capable of influencing the future of cybersecurity technologies.
All Roads Lead to the Ministry of Defense
I know first-hand, what the Chinese government requires in exchange for doing business there, and while disguised as operating through benign local county managers, everything that happens in China ends up in the hands of the Ministry of Defense.
Recognized national AI expert, and the US Air Force’s first Chairperson for Artificial Intelligence, Michael Kanaan masterfully explains in his current book, “T-Minus AI”, what each of us should know about China, AI and machine learning.
Kanaan dives into the global implications of AI by illuminating the cultural and national vulnerabilities already exposed and the pressing issues that now lie squarely on the table. AI has already become China’s all-purpose tool to impose its authoritarian influence around the world, and it drives China’s dominance through the belt and road initiative which has already commandeered over 60 countries with limited resources and weak economic engines.
Russia Plays Catch Up
Russia, playing catch up, is weaponizing AI through its military systems and now infamous, aggressive efforts to disrupt democracy by whatever disinformation means possible. As we just saw in the last 2 election cycles and continue to see in the social media storm of fomenting demands for reparations and equal justice, amplifying the altitude of outrage and harkening back toward a former, and historically important, authoritative leader’s thesis on conflict and class theory.
All Bark and No Bite
Our fabled U.S. Congress has recently passed legislation that supposedly expands the government’s power to block foreign investment in U.S. companies, and it includes venture investments. This new law would give the U.S. government’s Committee on Foreign Investment in the United States (CFIUS) wide latitude to decide what sorts of deals to examine, eliminating certain ownership thresholds, with a particular focus on so-called “critical” technologies.
But the version of the bill that made it through exempts “passive” investors, which would cover almost all of the limited partners that back venture firms. Only limited partners (LPs) that have some control over the business, or firms whose managing partner is a “foreign person”, might be subject to additional scrutiny, whatever that means. Since it is extremely rare that an LP would have any direct “control” over a venture funded business, this “scrutiny” loophole is a built-in back door.
So, as usual, a new bill that sounds like it might address a national security issue, actually has no teeth at all and prevents nothing.
An Adversarial Funded Ecosystem
As opposed to taking a passive role in venture funds, the Chinese government funds manage to take an aggressively active role by providing a greater percentage of a startup’s funding, which allows them to (surprise!) request and be provided with intimate information about startups, like a full review of their IP and product architecture and business plans.
A deeper dive into Danhua Capital, which is backed by the Zhongguancun Development Group, a state-owned enterprise funded by the Beijing government, reveals investments in some of the most sensitive technology sectors. Like the data management and security company Cohesity, which counts the U.S. Department of Energy and U.S. Air Force among its customers, and the drone startup Flirtey, which was recently selected by the U.S. Department of Transportation to participate in projects to help the agency integrate drones safely into U.S. air space.
You may reasonably wonder why we keep on bringing adversarially funded technology companies into the U.S. government ecosystem.
I have no answer, beyond the obvious.
Business as Usual
During World War II, Standard Oil shipped fuel through Switzerland for the Nazi occupation forces in France; new Ford trucks transported German troops throughout occupied Europe; ITT, the industrial manufacturer based in New York, supplied Germany with the bombs that marauded much of London, and built the Focke-Wulfs that dropped those bombs. In 1944, the American banker Thomas H. McKittrick was the CEO of a Nazi-controlled bank, and while Americans were dying in the war, McKittrick sat down with his German, Japanese, Italian, British and American executive staff to plan for the distribution of the gold bars that had been sent to the bank earlier that year by the Nazi government for use by its leaders after the war.
This was gold that had been looted from the banks of Austria, Belgium and Czechoslovakia or melted down from the teeth fillings, eyeglass frames and wedding rings of millions of murdered Jews.
The ideology of “business as usual” did not start with Bernie Madoff, Michael Cohen or Rudy Giuliani.
Failure to Understand the Enemy
Allowing a Chinese-backed security company to connect and integrate with a U.S. military computer network while at the same time banning one of the most respected security analytics firms in the world (Kaspersky Labs) from use by any U.S. government agency because it is a (gasp) Russian company, suggests a failure by Congress to understand how the engine they are trying to manage actually works.
The Three-Step Plan
In 2019, China released a massive three-part strategy aimed at achieving very clear benchmarks of advances in AI. First, by 2020, China said they would match the highest levels of AI technology and application capabilities in the U.S. or anywhere else in the world. Second, by 2025, they will capture a verifiable lead over all countries in the development and production of core AI technologies, including voice and visual-recognition systems. Finally, by 2030, China will dominantly lead all countries in all aspects and related fields of AI.
To be the sole leader, the world’s unquestioned and controlling epicenter of AI. Period. That is China’s declared national plan.
A New World Order
At around the same time, Russian President Vladimir Putin had broadcast a sound bite making headlines around the globe. His unambiguous three sentences translated to: “Artificial intelligence is the future, not only for Russia, but for all humankind. It comes with colossal opportunities, but also threats that are difficult to predict. Whoever becomes the leader in this sphere will become the ruler of the world.”
Former KGB officers speak carefully and only for calculated reasons. Putin is no exception. His words matter, always. And so does his purpose. But what was it here? Just to offer a commentary or forecast? No. Not his style. A call to action, then, to energize his own population? Perhaps. But, more than that, this was a statement to other statesmen, a confirmation that he and his government were awake and aware that a sophisticatedly deep effort was underway to accomplish a new world order.
With the Chinese government’s newly published AI agenda available for the world to see, Putin’s words resolved any ambiguity about its implication. True to his style, his message was clear and concise. “Whoever becomes the leader … will become the ruler of the world.”
The Natural Ebb and Flow of Progress
Kanaan writes that AI technologies have been methodically evolving since the 1960s, but over most of those years, the advances were sporadic and relatively slow. From the earliest days, private funding and government support for AI research ebbed and flowed in direct relation to the successes and failures of the latest predictions and promises. At the lowest points of progress, when little was being accomplished, investment capital dried up. And when it did, efforts slowed.
AI Winters and Springs
It was the usual interdependent circle of cause and effect. Twice, during the late ’70s and then again during the late ’80s and early ’90s, the pace of progress all but stopped. Those years became known as the AI winters.
But, in the last 10 to 15 years, a number of major breakthroughs, in machine learning in particular, again propelled AI out of the dark and into another invigorated stage. A new momentum emerged, and an unmistakable race started to take shape. Insightful governments and industry leaders began doing everything possible to stay within reach of the lead, positioning themselves for any possible path to the front.
Everything is Poised to Change
Sooner than many expected, AI is proving itself a dominant force of economic, political and cultural influence, and is poised to transform much of what we know and much of what we do. China, Russia and others are utilizing AI in ways the world needs to recognize. That’s not to say all efforts and iterations in the West are without criticism. They’re not. But if this new technology causes or contributes to a shift in power from the West to the East, everyone will be affected. Everything will change.
Big Brother is Watching, Recognizing
China now has 400 million+ smart cameras that precisely capture facial recognition and display on huge digital billboards installed at every intersection in major cities, the identity of Chinese citizens who have failed to pay a parking ticket or committed some other violation of their social contract with the PRC.
The cameras are also used to monitor and track citizen behavior on a 24/7 basis. It is part of their “social credit system” that will soon (2022) become a unified, operational umbrella that can reward or punish all 1.4 billion of its people, by either allowing them various opportunities that we take entirely for granted in the West, or restricting certain entitlements based on their scores.
The Key to Making Lifelong Friends
As the algorithms become more adept at this type of use, the global risk increases as just like the BRI, other countries are availing themselves of the technology that China is perfectly willing to share.
Because making the technology available to influence governments and regions it considers economically, politically or militarily advantageous, China’s willingness to export digital infrastructure and systems that can quickly enhance a poor country’s technological capabilities makes China a compellingly attractive economic and political partner. In short, just like economic and necessary resource handouts, China is further making lifelong friends around the world.
Tangible Benefits vs. Symbolic Gestures
In Ecuador for example, thousands of smart Chinese cameras are mounted on poles and buildings throughout cities and much of the countryside. These surveillance cameras were part of Chinese contracts that provided technologies, financing, materials and training in exchange for long term rights to Ecuadorian oil reserves.
While the rest of the world makes symbolic gestures to the Paris climate accord, with 1.5 million people to look after, China knows it will need oil and gas into perpetuity.
The Ecuadorian cameras are linked to monitoring stations which Ecuadorian police can use for surveillance with the aim of political repression and social intimidation. China has sold surveillance systems like these to Zimbabwe, Uzbekistan, Pakistan, Kenya, Bolivia, Venezuela and the UAE.
Tracking Data at Warp Speed
The cameras and surveillance systems are, by the way, manufactured by two fully state-owned companies, one of which is Huawei. While Huawei is linked to China’s party state in ways even more direct than most other Chinese entities, Huawei, the global 5G industry leader has exported telecom infrastructure and related consumer electronics to more than 150 countries world-wide.
Engineered to operate using millimeter radio waves, 5G will transform the Internet with a broadband capacity 100 times that of current 4G networks. China’s unbreakable ties to Huawei are related to 5G’s ability to deliver AI app speeds that will enable them to function down at the mobile device level, bringing the future of machine learning into the hands of consumers. And, since almost 1 billion Chinese do everything from messaging, banking, shopping, bill payment, entertainment while consuming daily propaganda about Xi Jinping and his benevolent leadership and completing quizzes to prove they have been good students, all on their WeChat app, getting the data on every citizen’s activities 24/7 at warp, 5G speed will enable much more granular monitoring, surveillance and tracking.
China also views AI as its opportunity to leapfrog many phases of weapon development and narrow the gap between its own war capability and that of the U.S. Wanting to make certain that the world knew that China is a peaceful nation, it submitted a position paper to the UN claiming to support a global ban on lethal autonomous weapons. The only problem with their position is they failed to define what one of those might be.
Western Intel has known for years that China has been developing autonomous, unmanned military vehicles for deployment on land, air and sea, and has a long history of exporting arms to other countries. In fact, some of these AI-enhanced vehicles have been exported as trade components of many country’s BRI pacts with the PRC.
Falling Behind Fast
I mention this application of AI only to point out the sort of future our country might expect, if China prevails in their global assault. If you want to get really concerned, I suggest you read Kanaan’s book.
The main thrust of this essay is that we have fallen very far behind in AI/ML and Quantum R&D, and our “trading partners”, the Chinese and Russians, are pouring massive resources into pushing the envelope toward global dominance. Our gesture in a similar direction only occurred a few days ago and was tied not to leadership in AI/ML or Quantum, but rather to building out a better cybersecurity platform for defense against “sophisticated” cyberattacks like SolarWinds and Accellion.
Ignoring the Warning Signals
Those flashing red lights resulted in a mere $400 million increase in Federal funds toward the $2.5 Billion cybersecurity budget which must be shared across tens of agencies. That $400 million is $50 million less than the Federal government subsidy that goes to Yale University every year. If our Federal networks weren’t infested with bad guys, even that paltry increase would likely have not been approved.
The Chinese, on the other hand, spend $2.5 Billion in one research center and the product of that work is the Quantum network over which bullet-proof, 5G transmissions speed along today, traversing between Beijing and Shanghai, while we spend countless calories yelling at each other electronically about systemic racism, or Brittany Spears’ dementia.
How many Quantum networks do we have?