The vast potentail of the China market - epitomized by the business center of Shanghai, shown here - is central to the China-Japanese relationship. Photo: Shanghai Electric

A US$471 million venture capital fund to be established by a group of Chinese military and business institutions aims to circumvent US sanctions to secure high-end military technology, according to a recent Taiwanese media report.

Yang I-Kwei, a researcher affiliated with Taiwan’s Ministry of National Defense, said in an April 15 Taipei Times article that China aims to develop its own domestic military supply chain through the fund, significantly at a time when Beijing has stepped up its threats against Taiwan.

Yang’s comments came after Guangzhou Haige Communications Group Corporation, which provides communications, simulators, military pilot training systems, and navigation equipment to the Chinese military, announced this month that it will team up with China Poly Group, China’s largest state-owned supplier of military equipment, missile technologies and drones.

Guangzhou Haige Communications participated in the development of China’s homegrown Beidou satellite navigation system.

China Poly Group is among 102 state-owned enterprises under the supervision of the Chinese Assets Supervision and Administration Commission and serves as an important importer and exporter for China’s military equipment. The company will be one of the largest controlling institutions of the new venture capital fund.

Yang claimed that the new venture capital fund aims to improve China’s position in its military technology competition versus the US. He also added that the Covid-19 pandemic, US sanctions against China, and Russia’s invasion of Ukraine have prompted many venture capitalists to flee Asia.

China likely aims to re-energize its domestic venture capital market and boost its information and communications development in a bid to commercialize its technology in the future, Yang said.  

Yang also warned that the Chinese military’s efforts could enable China to enhance its ability to supervise and control personal information, which could pose threats to democracies.

China has been heavily investing in so-called “smart cities”, which incorporate the use of technology to improve urban infrastructure and services ranging from energy grids, public transport, water treatment, waste management, and security, among others.

Smart cities are a major part of China’s national development strategy, with Chinese President Xi Jinping endorsing the concept at a national urbanization convention in 2015, and later explicitly mentioning it in the 13th Five Year Plan for 2016-2020.

Technological innovations such as blockchain, AI, machine-learning, 5G, internet of things (IOT), cloud computing and new energy vehicles via public-private partnerships with firms such as Huawei, Megvii, Tencent, Hikvision, SenseTime, CEIEC, Alibaba, ZTE, Dahua, and Meiya Pico have transformed major Chinese cities such as Shanghai, Hangzhou, Shenzhen, Suzhou and Beijing into smart cities.

One of China’s major goals is to export its smart city concept, along with its enabling technology.

During the May 2017 Belt and Road Forum, President Xi touted the benefits of China’s smart city concept and technology, stating “We should advance the development of big data, cloud computing and smart cities to transform them into a 21st century digital silk road. It is also fundamental for humanity that the development must incorporate ‘green’ development.”

China’s smart city concept also has fundamental differences with Western ideas. In contrast to Western ideas wherein publicly collected information must be anonymized, China’s police are working closely with tech companies to link big data to specific names and ID numbers.

While China’s smart city concept offers convenience and cost savings, it also brings certain risks as authoritarian regimes can use this technology to clamp down on dissent.

They also raise the possibility of Chinese state security services using its smart city exports to extract sensitive data from client countries. In extreme cases, China may opt to use a “kill switch” for its smart city exports, thereby paralyzing citywide operations.

Despite those concerns, an October 2020 study states that since 2013 China has done 116 deals to install smart city and “safe city” packages around the world, with Belt and Road Initiative (BRI) countries hosting 70 of these projects. Twenty-five such projects are in Western and Southern Europe, with the Middle East and Southeast Asia having 16 such projects.

 A key difference between “smart” and “safe” cities is that the latter is intended for surveillance and monitoring of the population, while the former also incorporates municipal functions in addition to surveillance.

China’s new venture capital fund may thus be mobilized under the framework of its military-civil fusion strategy, bolstering the development of dual-use technologies such as the smart city concept that serves both its civilian and military ends.