American hardtech venture is finally being taken seriously. Deep tech funds are outperforming conventional VC. The opportunity is real, and it’s being funded the way it should be, by investors who bear the cost of being wrong.

But there’s an elephant in this room, and it isn’t a coastal fund getting into the game without the capital, infrastructure, or institutional knowledge to truly back physical technology. It’s a structurally different kind of competitor entering the exact same categories—quantum, physical AI, hardtech, humanoids—that doesn’t play by the rules that make venture capital work in the first place.

Last year, Chinese data provider Zerone reported that 90% of committed capital in China’s private equity market came from state-affiliated investors, up from about 79% in 2021. The shift reflects a clear priority from Beijing. China’s president, Xi Jinping, has repeatedly called on financial capital to “invest early, invest small, invest for the long term, and invest in hard technology,” a directive now reflected in China’s national investment strategy.

This is not “government money in venture capital,” which is neither new nor inherently distortive. The United States has run public venture capital for decades with programs like SBIC and In-Q-Tel, which has spent 25 years proving a government-linked investor can operate as a market facilitator rather than a market maker, co-investing alongside private capital instead of replacing it.

By comparison, OECD data shows government-affiliated investors participate in no more than 3% of all VC deals in the United States, and 11% across Europe.

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