Napoleon said, 'Do not awaken China.' That was almost 200 ago. Today, China is awake and energetic, and has funding from the most deep-pocketed of sources - the U.S. venture community.There are two questions of concern to everyone in the industry: Where will new communications companies come from? Who will finance them? Answer No. 1: China. Answer No. 2: U.S. venture-capital firms.Last month I attended a board meeting in China and was blown away by the work ethic, systematic approach and hunger entrepreneurial Chinese companies have to become major players in the world market. Chinese technology, while still five years behind ours, is rapidly catching up. Firms such as Motorola and Qualcomm have major beachheads in China - not just because of low-cost manufacturing but also because of first-rate talent. Bill Gates has been quoted as saying his Chinese R&D lab is the second-most productive in the world.What is not obvious is the financial muscle behind this. U.S. venture capitalists are falling over themselves to invest in Chinese communications companies - and this in the face of 20 years of bad experience, losses, quirky management and questionable ethics. Why? What has changed?There are two views of China. One says that the first U.S. investors into Chinese telecom companies are going to get clobbered, robbed blind by their partners and find their intellectual property seeping out the door. The second view is, yes, all that may be true, but here is an economy that is growing 10% per year, generates a $100 billion trade surplus and is going to be the world's greatest communications customer over the next 10 years. This view is to disregard the questionable ethics and lack of believability in all financial reports, and regard these losses as just the entry cost of joining the club.Here's an analogy. When hungry penguins are on an ice floe, they need a way to determine if there are sharks in the water. They start jostling one another until one falls in. If the shark grabs this first penguin, the rest resist fishing for a time. If no shark appears, they jump in. Kind of Darwinian game theory.U.S. venture capitalists are the penguins. Although China is in the Wild West, Draper Fisher made a ton of money by investing in Baidu, the Google of China; Greylock Partners and NEA Ventures are the new limited partners in China's Northern Light Ventures; and IDG Ventures and Accel Partners are putting $250 million into a new fund, IDG-Accel China Growth. Ollie Curme, my former partner at Battery Ventures, has invested in a Chinese motorcycle company and is raising a new China-focused equity firm called Shanghai Ventures. Let me know if you see a trend here.Look at it this way: It costs $100 million to build a carrier-class equipment company in the United States, with most of the money going for engineering. But suppose you could hire 20 electrical engineers for the price of one U.S. engineer. Suppose you also concluded that when the Chinese government buys, it is going to favor domestic suppliers and Chinese entrepreneurs who know how the system works will be the winners.I sit on the advisory board of 3Com, which has a joint venture with Chinese vendor Huawei - the same Huawei that Cisco sued a few years ago for stealing its router code. So far, the joint venture is exceeding 3Com's expectations.Capital moves to places where it is welcomed, where returns are good. U.S. venture firms have concluded that investing in telecom in the United States is suboptimal now. But they are willing to add country risk to technical risk, financial risk and market risk, and invest in a country where lawlessness is still rampant, capital always seem to go in but not come out and intellectual property rights seem to fall right behind human rights. They look at a China that is reinventing itself monthly.Napoleon said, "Do not awaken China." That was almost 200 ago. Today, China is awake and energetic, and has funding from the most deep-pocketed of sources - the U.S. venture community.