Why are venture capitalists so in love with China? Borrus says there are three main reasons. The first is the sheer number of Chinese companies that went public on NASDAQ last year. "If, on a going-forward basis, 25 percent of the [venture-backed technology]IPOs in the United States are domestic Chinese technology companies, that is something that will attract the attention of the venture community," he says. No. 2, "there is too much capital in the United States, chasing too few potential home runs." Borrus says there is around 52 billion dollars of venture capital "sitting around waiting to be invested."

"Where am I going to earn extraordinary returns, if I am part of the pack that's investing this $50 billion?" asks Borrus. "There aren't that many other places in the world. Europe's got some opportunities, but it's not growing so fast. So the perception is: Gee, I can do it in China. China is viewed as somewhat easy pickings."

No. 3 is cost efficiency: "One of the things that drives venture returns is efficiency of capital deployment. How much capital does it take you to get a company to the point where it's making money? One of the ways to conserve capital is to have to put less to work. And the quickest way to cut the amount of capital you are putting in by a substantial margin is to go where those kinds of resources are cheaper, and China, India and some other places are clearly where that's the case."

Borrus is among a minority in the valley who believe that there is already a China bubble, and that many members of the "pack" rushing to China right now will end up losing money, in a history-repeats-itself replay of the lemminglike behavior that turned the dot-com boom into a ludicrous bust. But the irony is that even if Silicon Valley's venture capitalists collectively lose their shirts, they'll still end up helping build out China's high-tech infrastructure.

At the same time, it is difficult to see how the investment of capital offshore will address the long-term requirements of the U.S. economy. The venture capital system is a great way to generate wealth for those with excess millions, but it has little application to the problem of funding basic science that has no immediate commercial application, nor can it address the withering away of scientific and engineering expertise. There is no short-term windfall in funding education or speculative research.

That takes government will -- something that China has plenty of and a distracted U.S. government seems unwilling to demonstrate. And that's a shame because the United States has always been about inventing the future.

"We are not going to reverse course and go anti-global," says Borrus. "Whats going to China, should go to China. If we say that the stuff that is going to China is the only stuff that Americans can compete in then we are really in trouble. It is a failure of imagination to believe that there can't be, that there aren't new opportunities that derive from the scientific and technological base that exists in the United States that doesn't exist anywhere else. If we can't figure out a way to exploit our national competitive advantage -- that still very deep technology base -- then we've lost it."

Examples of new markets that could be exploited include those that would develop from advances in nanotechnology, biotech or alternative energy. Meanwhile, instead of fearing Chinese preeminence in chips, we should be welcoming the country's emergence as both a market for and a supplier of high-tech goods. Who else is going to buy Intel's next generation of chips in greater numbers than ever before? Who else hungers so mightily for Applied Materials' state-of-the-art semiconductor-manufacturing equipment? For long-term global peace and prosperity, isn't it better to be more closely intertwined with potential foes than to stand apart, barricaded by punitive tariffs and export controls?

"The U.S. economy should focus more on developing cutting-edge technology and investing in science and engineering, getting universities on track, and worry less about the world catching up," says Amir Sharif, a product manager at Cisco Systems, who co-organized and led a tour of China for venture capitalists in 2004. "Because the rest of the world is catching up, and that's a good thing. The competition is not us against the Chinese. It is a symbiosis; the more we advance our own technology and the more we depend on our partners, the more we can promote a peaceful coexistence."