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Beyond CFIUS: The Strategic Challenge of China’s Rise in Artificial Intelligence

Elsa Kania
Tuesday, June 20, 2017, 12:30 PM

Congress may soon consider legislation reportedly being drafted by Senator Cornyn that could heighten scrutiny of Chinese investments in artificial intelligence and other sensitive emerging technologies considered critical to U.S. national security interests.

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Congress may soon consider legislation reportedly being drafted by Senator Cornyn that could heighten scrutiny of Chinese investments in artificial intelligence and other sensitive emerging technologies considered critical to U.S. national security interests. The legislation is intended to address concerns that China has circumvented the Committee on Foreign Investment in the United States (CFIUS), including through joint ventures, minority stakes, and early-stage investments in start-ups. As Secretary of Defense Jim Mattis testified last week before the Senate Armed Services Committee, CFIUS is clearly outdated, and change is warranted. That said, it is critical to recognize that the strategic challenge of China’s advances in artificial intelligence necessitates a much more far-reaching response.

China’s rise in artificial intelligence has become a reality. Whether the metric considered is the magnitude of publications and patents, the frequency of cutting-edge advances, or the aggregate levels of investment, it is evident that China has the capability to compete with—and may even surpass—the U.S. in artificial intelligence. For the time being, the U.S. may retain an edge, but it is unlikely to sustain a decisive advantage in the long term.

In this context, an update to CFIUS may represent one helpful step to reduce damaging technology transfers, but will not, by itself, adequately address this critical strategic challenge. Hopefully, the proposed changes to CFIUS will take a targeted approach, while avoiding potential adverse externalities that could inadvertently undermine U.S. competitiveness. For instance, future scrutiny of Chinese technology deals related to artificial intelligence should focus on those involving the most critical, sensitive components, including specialized machine learning chips such as Graphics Processing Units (GPUs) and Tensor Processing Units (TPUs). However, CFIUS can be an unwieldy process that may readily become politicized or inadvertently constrain foreign direct investment that actually supports American innovation. It will be also important to ensure that appropriate concerns about restricting the transfer of sensitive technologies to China do not distract from the fundamental, underlying challenge—to ensure enduring U.S. competitiveness against this backdrop of China’s advances in indigenous innovation.

It is clearly a mistake to underestimate China’s competitiveness in this space based on the problematic, even dangerous assumption that China “can’t” innovate and only relies upon mimicry and intellectual property theft. That is an outdated idea contradicted by overwhelming evidence. It is true that China has pursued large-scale industrial espionage, enabled through cyber and human means, and will likely continue to take advantage of technology transfers, overseas investments, and acquisitions targeting cutting-edge strategic technologies. However, it is undeniable that China’s capability to pursue independent innovation has increased considerably. This is aptly demonstrated by China’s cutting-edge advances in emerging technologies, including artificial intelligence, high-performance computing, and quantum information science.

Neither the U.S. nor China is likely to be able to secure undisputed advantage in a knowledge-based field like artificial intelligence. Today, the majority of cutting-edge research and development in artificial intelligence tends to occur within the private sector because, among other things, that is where much of the money and many of the best people are. Furthermore, unlike past breakthroughs in military technologies, artificial intelligence has massive and immediate commercial implications. The resulting flows of data, knowledge, talent, and capital across borders are challenging, if not infeasible, to constrain, particularly given the intense competition and tremendous commercial incentives in a globalized, networked world. The diffusion of advances in artificial intelligence thus occurs rapidly. Traditionally, the U.S. has sought to secure its technological predominance through such measures as CFIUS or export controls. However, these approaches will likely prove less effective for artificial intelligence and other emerging, dual-use technologies in which the U.S. is no longer such a singular locus of innovation.

Indeed, China aspires to lead the world in artificial intelligence. Under the Thirteenth Five-Year Plan, China has launched a new artificial intelligence megaproject. “Artificial Intelligence 2.0” will advance an ambitious, multibillion-dollar national agenda to achieve predominance in this critical technological domain, including through extensive funding for basic and applied research and development with commercial and military applications. In addition, China has established a national deep learning laboratory under Baidu’s leadership, which will pursue research including deep learning, computer vision and sensing, computer-listening, biometric identification, and new forms of human-computer interaction.

China’s future advances in artificial intelligence could also be enabled by critical systemic and structural advantages, including the magnitude of data and talent available, as well as the sheer size of its market. By 2030, China will possess 30 percent of the world’s data, according to a recent report from CCID Consulting. Beyond the available pool of talent within China—an estimated 43 percent of the world’s trained AI scientists—major Chinese technology companies aggressively compete for talent in Silicon Valley. For instance, both Baidu and Tencent have established artificial intelligence laboratories in Silicon Valley. Concurrently, China’s Thousand Talents Plan has also concentrated on the recruitment of top overseas experts. These “strategic scientists,” educated at the world’s leading institutions, are intended to contribute to China’s high-tech and emerging industries.

These developments could have significant implications for U.S. national security because the Chinese leadership seeks to ensure that advances in artificial intelligence can be rapidly transferred for use in a military context, through a national strategy of civil-military integration (or “military-civil fusion,” 军民融合). This agenda has become a high-level priority that will be directed by the Civil-Military Integration Development Commission, established in early 2017 under the leadership of President Xi Jinping himself. According to Lieutenant General Liu Guozhi, director of the Central Military Commission’s Science and Technology Commission, the People's Liberation Army (PLA) should pursue an approach of “shared construction, shared enjoyment, and shared use” (“共建、共享、共用”) for artificial intelligence as part of this agenda of civil-military integration. In this regard, even ostensibly civilian advances in artificial intelligence could eventually be leveraged by the PLA.

The PLA seeks to capitalize on the transformation of today’s informatized (信息化) ways of warfare into future “intelligentized” (智能化) warfare. Lieutenant General Liu Guozhi anticipates that artificial intelligence will result in a profound military revolution. To date, the PLA’s initial thinking on artificial intelligence in warfare has been influenced by its close study of U.S. defense innovation initiatives. In the Third Offset, the Department of Defense has focused on artificial intelligence and autonomy, including human-machine collaboration and teaming. (For example, through Project Maven, the DoD seeks to advance its use of big data analytics, artificial intelligence, machine learning, computer vision, and convolutional neural networks, including in an initial “pathfinder” project that will automate and augment the video data collected by UAVs.) However, the PLA’s evolving approach to artificial intelligence in warfare will likely diverge from that of the U.S. For instance, the PLA appears especially focused on the utility of artificial intelligence in command decision-making, war-gaming and simulation, as well as training.

Going forward, artificial intelligence has impactful and disruptive military applications, which both the U.S. and China seek to leverage to enhance their military power. Each country’s advances in artificial intelligence will be critical not only to their military capabilities but also to their future economic competitiveness. U.S.-China strategic competition in this field extends far beyond the issue of controlling technology transfers. As Lieutenant General Jack Shanahan, who leads Project Maven, stated last week, “It is hubris to suggest our potential adversaries are not as capable or even more capable of far-reaching and deeply embedded innovation.”

This is equally true for both commercial and military innovation, thus highlighting the unique challenge that dual-use technologies like artificial intelligence represent. Although proposed legislation to update CFIUS could address one aspect of the issue, the U.S. should also focus on ensuring adequate funding for scientific research, averting the risks of an “innovation deficit,” and competing aggressively to attract leading talent in this field. The U.S. must prioritize nurturing a favorable innovation ecosystem in order to enable future advances in artificial intelligence and thus enhance its long-term competitiveness.

Thanks so much to Paul Triolo for sharing his insights on these issues.

Elsa B. Kania is an adjunct senior fellow with the Technology and National Security Program at the Center for a New American Security. Her research focuses on U.S.-China relations, China’s military strategy, defense innovation and emerging technologies. She has been invited to testify before the House Permanent Select Committee on Intelligence, the U.S.-China Economic and Security Review Commission, and the National Commission on Service. Her views are her own.

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