Defense Innovation: China's Technology Transfer Strategy

Exploring China’s participation in U.S. venture deals and the passing of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA)

Defense Innovation

CHALLENGE: The U.S. government did not have a holistic view of how fast China's technology transfer is occurring or the multiple methods China uses for that transfer, the level of Chinese investment in U.S. technology, or a consolidated view of what technologies we should be protecting.

APPROACH: In 2017, Presidential Innovation Fellow Michael Brown co-authored a report exploring China’s participation in U.S. venture deals to assess: how large the overall investment was, whether it was growing and what technologies were the focus of investment. In the process he found Chinese participation in venture-backed startups at a record level of 10-16 of all venture deals (2015-2017) and that investment had grown rapidly in the past seven years.

The report also found that the technologies where China is investing are the same ones where U.S. firms are investing and that will be foundational to future innovation: artificial intelligence, autonomous vehicles, augmented/virtual reality, robotics and blockchain technology. Moreover, these are some of the same technologies of interest to the U.S. Department of Defense to build on the technological superiority of the U.S. military today. The speed at which dual-use technologies are developed in the commercial sector has significant impact on the nature of warfare and the critical need to master them ahead of competitors.

The U.S. economy today continues to benefit from the innovations arising from decades of federal research which created new industries at the forefront of technology today including those based on semiconductors, GPS, the internet, hydraulic fracturing, genomics and many others. To benefit from a thriving future economy, the authors concluded that the U.S. must increase the investment in federally-funded research and recruiting to drive a growing pipeline of innovations and technology breakthroughs. Additionally, to preserve our technological advantage, we must take steps to ensure “a healthy and secure national security innovation base that includes both traditional and nontraditional defense partners” including early-stage companies.

PATH FORWARD: Michael Brown’s research on China’s Technology Transfer Strategy at DoD and his testimony before the House Financial Services Committee, Subcommittee on Monetary Policy and Trade was influential in Congress passing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). The FIRRMA legislation was passed by Congress and signed into law in August 2018.

To stimulate a proactive U.S. response to China’s investment in U.S.-based dual-use hardware companies, Michael proposed a program within the Department of Defense to catalyze private investment focused on hardware technologies important for the U.S. Military. This program, the National Security Innovation Capital (NSIC), was enacted as Section 230 of the National Defense Authorization Act of 2018.

In September 2018, Secretary James Mattis selected Michael Brown to lead the Defense Innovation Unit (DIU), which was formed in 2015 to accelerate the adoption of commercial technology into the military. In this way, he follows in the footsteps of other PIFs who have decided to stay and serve in leadership roles within the government.

In addition to DIU, the rebranded National Security Innovation Network (NSIN), which brings national security problems to universities where students and professors collaborate on new ways to solve these problems as part of the “Hacking For Defense” curriculum. The combination of NSIN, NSIC and core DIU are all aimed at growing the national security innovation base. With over 100 projects started, DIU has introduced more than 45 first-time vendors to the Department of Defense.