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.