While Musk's Neuralink drills into skulls, China's BrainCo bets the future of brain tech is wearable

Key PointsCompanies around the world, especially in the U.S. and China, are racing to build brain-computer interfaces – some through invasive implants, others by skipping surgery altogether.

Investors and industry players say the market for "augmenting" human abilities beyond therapeutic uses, remains many years away.China is pushing to develop neurotechnology, from national policy to hospital partnerships to commercialization. CNBC goes inside a Hangzhou-based startup at the center of that push.

Brain-computer interfaces, a nascent technology, establishes a direct link between human minds and devices.BrainCoElon Musk's Neuralink, which uses implants in people's heads to compensate for disabilities, has become the poster child for so-called brain-computer interfaces (BCI). But some companies are betting that mass-market neural tech won't require opening the skull at all.

BCI works by processing brain signals and translating them into commands, allowing external devices to be controlled by thought. Funding for startups in the field is a fraction of the capital flowing into artificial intelligence. But interest in the nascent field is rising as companies notch up milestones, such as enabling people with degenerative conditions including amyotrophic lateral sclerosis (ALS) to type or play video games using brain signals.

AI is a catalyst, boosting signal-processing capabilities. Some in the industry envision a further leap one day: using the mind to control or connect with AI and robots.The technology is raising the stakes in the U.

S.-China rivalry. The Chinese government included BCI as a strategic "future industry" in its latest Five-Year Plan.

Regulators recently approved what officials call the world's first minimally invasive BCI device for commercial use, developed by Neuracle Medical Technology to regain some hand function after spinal cord injuries.While companies including China's StairMed and NeuroXess push ahead with implants, the non-invasive field is gaining momentum – from the Sam Altman-backed Merge Labs to China's Gestala, both pursuing ultrasound-based approaches. BrainCo, one of the so-called "six little dragons" of tech startups in the eastern city of Hangzhou, makes prosthetics and wearable devices using BCI technology.

Rui Ma, founder of the Tech Buzz China media and research platform, said that while today's proven BCI applications can dramatically improve the quality of life for severely impaired patients, the far bigger market likely lies in augmenting human capabilities.But she added: "I don't think anyone is remotely close to realizing that ... Augmentation is like sci-fi at this point."

A brain-tech roadmapFounded in 2015 and born out of the Harvard Innovation Labs, BrainCo has planted its flag on the non-invasive side.The implanted and non-invasive approaches are different paths to different problems, BrainCo partner and senior vice president Nyx He told CNBC in a recent interview. Some conditions can only be addressed by going into the brain, she said, but BrainCo believes many others – particularly where drugs fall short – can be served by non-invasive methods that are easier for people to accept and access, at lower risk and cost.

The company's bionic hands, approved by the U.S. Food and Drug Administration, read an amputee's neural and muscular electrical signals and translate intended movements into finger motions.

Its wearables include a sleep aid that BrainCo says uses low-intensity electrical pulses to stimulate neurochemicals associated with stress relief.BrainCo has raised 2 billion yuan ($280 million) in a funding round co-led by IDG Capital and Walden International, the venture firm founded by Intel CEO Lip-Bu Tan.BrainCo's bionic hands process brain signals and translate intended movements into commands.

CNBCThe core challenge for non-invasive methods, according to He, is acquiring and decoding brain signals, which are subtle and noisy when read from outside the skull. BrainCo developed a dry electrode sensor to capture the signals and an AI algorithm to decode them.He outlined the company's roadmap in stages: start with those who need the technology most, such as amputees in markets covered by insurance; expand into medical conditions like ADHD and depression; then target the mass market with consumer electronics.

Eventually, BrainCo plans to license its BCI platform to other companies building brain-tech products – a business she expects to become the company's largest revenue driver.The startup's plan echoes thinking emerging at the national level. In a state-media commentary this week, a Chinese Academy of Sciences researcher specializing in non-invasive BCI laid out a similar trajectory: from medical applications in the near term, to uses in autonomous driving and smart manufacturing, and ultimately to mass-market consumer products.

Sci-fi hype to commercial realityInvestors are split over the best technological approach. But most agree the real test is whether companies c