A recent report indicates that China’s major venture capital investments increasingly focus on technology sectors that are aligned with government policies, such as AI and semiconductors. Despite an overall decline in funding, China accounted for 90% of global venture capital (VC) in the chip sector last year, investing $22.2 billion, more than double the $9.5 billion from 2022.
According to Preqin, a private investment data company, three significant deals, primarily involving partnerships between municipal authorities and Sino IC Capital, accounted for half of the semiconductor venture investments. Sino IC Capital manages the state-backed China Integrated Circuit Industry Investment Fund, also known as the Big Fund.
Overall, the report highlights three key takeaways. Firstly, China’s clean technology VC deals have surpassed those in the US in both value and volume for 2022 and 2023, especially in electric vehicles. Secondly, overall venture capital in Greater China has dropped sharply, a 42% decrease from the previous quarter, due to geopolitical tensions and fewer exit opportunities. Thirdly, foreign VC investments in Chinese firms have plummeted from $67 billion in 2021 to $19 billion in 2023, while domestic investments have remained stable.
Why does it matter?
The trend is clear evidence of the ongoing US-China tech supremacy war and the effect of US sanctions. With the US trade tariffs and restrictions on American venture capital firms prompting foreign investors to withdraw from the region, this report reveals how the Chinese government, in response, has stepped up and is backing state-funded entities to fill the void, with significant investments also coming from domestic tech companies.
China leads the world in generative AI patent requests, significantly outpacing the United States, according to the UN’s World Intellectual Property Organization (WIPO). The technology, which has surged in public awareness since late 2022, was linked to approximately 54,000 inventions over the past decade. More than a quarter of these were filed just last year, highlighting the rapid growth and interest in generative AI.
WIPO’s report, the first of its kind, aims to track trends in generative AI development through patent applications. Over 38,200 generative AI inventions originated from China in the past decade, far surpassing the nearly 6,300 from the USA. South Korea, Japan, and India followed with significantly fewer patents. Generative AI, which includes tools like ChatGPT, Google Gemini, and Baidu’s Ernie, is utilised across various industries, including life sciences, manufacturing, and telecommunications.
Despite the many patents, WIPO cautions that quantity does not equate to quality. It remains uncertain which patents will hold market value or have a transformative impact on society. While the US and China are often seen as rivals in AI development, US tech companies currently lead the production of cutting-edge AI systems. In 2023, US-based institutions produced 61 notable machine-learning models, compared to 21 from the EU and 15 from China. The US also leads in AI foundation models and private AI investments.
China’s Ministry of Industry has announced the inclusion of 20 cities, including Beijing and Shanghai, in a pilot initiative focused on ‘vehicle-road-cloud integration’ for intelligent connected vehicles. The program aims to establish a standardised and unified system by 2026, facilitating the deployment of smart-connected vehicles across the nation, according to a statement released by the ministry on Wednesday.
Why does it matter?
Recently, China announced increased policy support to accelerate the development of smart connected vehicles, which experts believe could make the country the world’s largest market for self-driving cars. As part of these efforts, the Ministry of Industry and Information Technology plans to allocate 100 million 11-digit mobile network numbers to enhance communication among vehicles and with back-end management systems. According to McKinsey & Co., projections estimate that China’s autonomous vehicle market could exceed $500 billion in revenue by 2030.
China’s government is working on developing standards for brain-computer interfaces. The Ministry of Industry and Information Technology announced plans to form a technical committee for this purpose. The committee will develop brain-computer interface standards for data encoding, communication, visualisation, electroencephalogram data collection, and applications in medicine, health, education, and entertainment while considering ethics and safety.
Members of the committee will come from relevant research institutions and government departments. Once the standards are set, Chinese researchers will be organised into clusters, all adhering to these new guidelines. The strategy aims to streamline efforts and allow China to set international standards before other countries, giving its local manufacturers an early advantage.
Why does it matter?
China has a history of trying to lead in international standards, as seen with Huawei’s 5.5G technology and its ambitions in IPv6 standards. While some efforts have failed, China continues to push for influence in standards bodies, which observers note can be susceptible to manipulation. Other bodies are already working to set standards on brain-computer interfaces, such as the Institute of Electrical and Electronics Engineers (IEEE) group on Neurotechnologies for Brain-Machine Interfacing. Moreover, private companies like Elon Musk’s Neuralink are also making strides in this field, which, if successful, might overshadow these standardisation efforts.
The UN General Assembly has adopted a resolution on AI capacity building, led by China. This non-binding resolution seeks to enhance developing countries’ AI capabilities through international cooperation and capacity-building initiatives. It also urges international organisations and financial institutions to support these efforts.
The resolution comes in the context of the ongoing technology rivalry between Beijing and Washington, as both nations strive to influence AI governance and portray each other as destabilising forces. Earlier this year, the US promoted a UN resolution advocating for ‘safe, secure, and trustworthy’ AI systems, gaining the support of over 110 countries, including China.
China’s resolution acknowledges the UN’s role in AI capacity-building and calls on Secretary-General Antonio Guterres to report on the unique challenges developing countries face and provide recommendations to address them.
Microsoft is restructuring its retail strategy in mainland China, consolidating its retail channels amid reports of closing its network of authorised physical retailers. The tech giant did not confirm the closures or specify the number of stores affected but emphasised the need to adapt to changing customer needs.
Microsoft assured its products would remain available in China through retail partners and its website despite not operating physical stores directly in the region. However, the company did not detail which partners would continue to stock its products.
The change of strategy reflects Microsoft’s ongoing efforts to optimise its retail strategy in one of the world’s largest markets, ensuring accessibility and customer satisfaction through diverse channels, despite diplomatic and political challenges and restrictions.
A suspected Chinese state-linked hacking group is increasingly targeting Taiwanese entities, particularly those within government, education, technology, and diplomacy sectors, as reported by cybersecurity intelligence firm Recorded Future. In recent times, the relationship between China and Taiwan has faced escalating tensions. The cyber assaults attributed to the group dubbed RedJuliett occurred between November 2023 and April 2024, coinciding with Taiwan’s presidential elections in January and the subsequent change in leadership.
While RedJuliett has previously targeted Taiwanese organisations, the recent wave of attacks marked a significant escalation in scope. The hacking attempts by RedJuliett targeted over 70 Taiwanese entities, including universities, an optoelectronics firm, and a facial recognition company with government contracts. While the success of these infiltration attempts remains unclear, Recorded Future only confirmed the observed efforts to identify network vulnerabilities.
Recorded Future revealed that RedJuliett exploited a vulnerability in the SoftEther enterprise virtual private network (VPN) software to breach the servers of these organisations. The open-source VPN facilitates remote connections to an organisation’s networks. The modus operandi of RedJuliett aligns with tactics commonly associated with Chinese state-sponsored groups, as per Recorded Future’s analysis. The geolocations of IP addresses suggest that RedJuliett likely operates from Fuzhou, a city in China’s Fujian province facing Taiwan’s coast.
The report speculated that Chinese intelligence services in Fuzhou are likely engaged in intelligence gathering against Taiwanese targets to support Beijing’s policymaking on cross-strait relations through RedJuliett’s activities. While Taiwan’s Ministry of Foreign Affairs refrained from immediate comments, a spokesperson from the Chinese Foreign Ministry dismissed the allegations, citing a lack of credibility in Recorded Future’s claims.
Why does it matter?
China’s increased military exercises around Taiwan and diplomatic pressures have exacerbated tensions, particularly following the election of Taiwan’s President Lai Ching-te, labeled a ‘separatist’ by China. Amidst escalating cyberespionage activities globally, Recorded Future anticipates continued targeting of Taiwanese government agencies, universities, and critical technology firms by Chinese state-sponsored groups. The firm recommends organisations prioritise patching vulnerabilities promptly to enhance their cybersecurity.
Geologists are expressing concerns about potential Chinese censorship and bias in GeoGPT, a new AI chatbot backed by the International Union of Geological Sciences (IUGS). Developed under the Deep-time Digital Earth (DDE) program, which is heavily funded by China, GeoGPT aims to assist geoscientists, particularly in developing countries, by providing access to extensive geological data. However, issues around transparency and censorship have been highlighted by experts, raising questions about the chatbot’s reliability.
Critics like Prof. Paul Cleverley have pointed out potential censorship and lack of transparency in GeoGPT’s responses. Although DDE representatives claim that the chatbot’s information is purely geoscientific and free from state influence, tests with its underlying AI, Qwen, developed by Alibaba, suggest that certain sensitive questions may be avoided or answered inadequately. That contrasts with responses from other AI models like ChatGPT, which provide more direct information on similar queries.
Further concerns are raised about the involvement of Chinese funding and the potential for biassed data usage. Geoscientific research, which includes valuable information about natural resources, could be strategically filtered. Additionally, the terms of use for GeoGPT prohibit generating content that undermines national security or incites subversion, aligning with Chinese laws, which may influence the chatbot’s outputs.
The IUGS president, John Ludden, has stated that GeoGPT’s database will be made public once appropriate governance is ensured. However, with the project being predominantly funded by Chinese sources, geoscientists remain sceptical about the impartiality and transparency of GeoGPT’s data and responses.
The United States has introduced draft rules to regulate investments in China, particularly in AI and other advanced technology sectors that could pose national security threats. The US Treasury Department released these proposed rules following President Joe Biden’s executive order in August, which targets semiconductors, quantum computing, and AI investments. The draft rules require US individuals and companies to identify and report transactions that may be restricted or banned, aiming to prevent US expertise from aiding China’s technological advancements.
The Treasury’s proposed rules include various exceptions, such as transactions in the US national interest or involving publicly traded securities. The regulations would specifically ban transactions involving AI for certain end uses and systems using significant computing power but require notifications for other AI-related investments. These rules focus primarily on China, Macau, and Hong Kong, though they might be expanded later.
Former Treasury official Laura Black highlighted that these rules would necessitate increased due diligence by US investors when dealing with Chinese companies in the specified sectors. The regulations also align with existing export controls on advanced semiconductors to China, aiming to hinder China’s military modernisation efforts. Violations of these rules could result in criminal and civil penalties, including unwinding investments.d
Why does it matter?
Treasury officials have engaged with international partners to discuss these investment restrictions, with the European Commission and the United Kingdom considering similar measures to address outbound investment risks. Public comments on the proposed rules are open until 4 August, with final regulations expected by the end of the year.
As China edges closer to the proverbial ‘splinternet’ there is more talk of the advent of AI on the continent. According to IBM, ASI is a hypothetical software-based AI system with an intelligence scope beyond human intelligence, possessing cognitive functions and thinking skills well beyond that of known humans.
According to SoftBank CEO Masayoshi Son, at the implementation level, ASI will bring about real change to our societies in about ten years. The CEO assured investors of his company’s plans to tap in to the trend, pinpointing the company’s majority shareholder portfolio in the chip design firm, Arm.
Similar developments in China see Huawei releasing HarmonyOS, the beta version of a mobile operating system, and rival to Android on the continent. Versions of the software are carded to come to market housed in smartphones, tablets, computers, smartwatches, smart glasses and earbuds by year end. The company also plans to build an ecosystem around the OS. Such technological developments in China further behooves the East and West to approach the table of negotiations as equals in the field of AI and other emerging technologies governance.
