A Congressional investigation has found that five U.S. venture capital firms have invested more than $1 billion in China’s semiconductor industry since 2001, fueling growth in a sector that the U.S. government now considers a national security threat. There was found.
The five companies — GGV Capital, GSR Ventures, Qualcomm Ventures, Sequoia Capital and Walden International — provided funding to more than 150 companies, according to a report released Thursday by both Republicans and Democrats on the House Select Committee. It was reportedly sent to a Chinese company. Communist Party of China.
The investments included about $180 million in Chinese companies that the committee said directly or indirectly supported the Chinese military. They include companies such as China’s largest chipmaker, Semiconductor Manufacturing International Corporation (SMIC), which the U.S. government says supplies chips for Chinese military research, equipment and weapons.
The House committee’s report focuses on investments made before the Biden administration imposed broad restrictions aimed at cutting off China’s access to U.S. funds. He does not allege any illegality.
Last August, the Biden administration banned U.S. venture capital and private equity firms from investing in China’s quantum computing, artificial intelligence, and advanced semiconductors. It has also imposed global restrictions on the sale of advanced chips and chip-making machinery to China, saying these technologies could help improve the capabilities of China’s military and spy agencies.
Since its founding a year ago, the commission has called for higher tariffs on China, targeted companies such as Ford Motor Co. for doing business with Chinese companies, and focused on forced labor concerns related to Chinese shopping sites.
The report recommends that Congress restrict investment in all Chinese companies and their parents and subsidiaries that are subject to certain U.S. trade restrictions or on federal “red flag” lists. did. This could include companies affiliated with the Chinese military or those with ties to forced labor in China’s Xinjiang region. Lawmakers said the U.S. government should also consider imposing regulations on other industries, such as biotech and fintech.
Sequoia announced last June that it would separate its China unit from its U.S. operations and change its name to Hongshan, before the commission announced its investigation into private financing. A few months later, GGV Capital announced it would spin off its Asia-focused business.
Walden did not respond to requests for comment. A representative for GSR declined to comment. GGV provided a list of corrections and clarifications to the report and stated that the report complies with all applicable laws. GGV is also looking to sell stakes in three companies mentioned in the report.
A Sequoia spokesperson said the company takes U.S. national security issues seriously and always has processes in place to ensure compliance with U.S. law. The company completed its separation from HongShan on December 31st.
A Qualcomm spokesperson said the company’s investments are small compared to venture capital, accounting for less than 2% of the investments covered in the report.
Washington officials are increasingly questioning even business relationships with private Chinese technology companies, arguing that China is seeking to tap private sector expertise to modernize its military. .
Committee leaders acknowledged that many of these investments were made at a time when the United States was encouraging greater economic engagement with China.
“Twenty years ago, we all bet on China’s integration into the global economy. It was logical,” said Rep. Mike Gallagher of Wisconsin, the committee’s chairman. “It just happened to be a mistake.” He added, “I don’t think there’s any more excuses now.”
The 57-page report is based on information provided by companies to the committee about their investments and interviews with senior executives from multiple companies.
The commission’s report examined only a small portion of the money flowing to China. Chinese semiconductor companies raised $8.7 billion between 2016 and July 2023 in deals involving U.S. investment firms, according to PitchBook, which tracks startup funding. That investment he reached its peak in 2021.
Venture capital firms have pursued aggressive global expansion, particularly in Asia, for decades. But they knew that investments in Chinese companies would come under increased scrutiny since the Trump administration took a more aggressive stance toward China.
“No one is touching China right now,” said Linus Liang, an investor at venture firm Khyber Knight Capital.
The report said breaking up investment entities with ties to China, such as Sequoia and GGV, may not resolve the committee’s concerns about U.S. funds and technology ending up in Chinese companies. Sequoia’s newly spun off, China-based company Hongshan, counts U.S. investors among its backers. And HongShan and GGV Asia, a new division of GGV, may continue to invest in US startups, the report said.
Much of the report focuses on California-based Walden International, one of the earliest and most influential foreign investors in China’s chip sector. Walden will be led by Lip-Bu Tan, former CEO of chip design company Cadence Design Systems and current director of Intel.
According to the report, Walden International has partnered with the Chinese government and Chinese state-owned enterprises, including prominent military suppliers, to create various funds for the chip sector.
The company was a founding shareholder and early source of funding for SMIC, but is now subject to U.S. trade restrictions due to its ties to the Chinese military. According to the commission’s investigation, Walden donated $52 million to SMIC over several decades, as well as tens of millions of dollars to SMIC-affiliated companies. Mr. Tan also served on the board of his SMIC.
He is credited with providing SMIC and other companies with a combination of capital, tools and intellectual property for chip design, and profitable connections with customers.
SMIC was designated a “trusted customer” by the U.S. government in 2007, but skepticism about the company’s activities has grown in Washington in recent years. Now, the company is key to China’s ambitions to build a thriving chip sector and reduce dependence on the United States.
Walden, along with Qualcomm Ventures, the investment arm of chipmaker Qualcomm, invested tens of millions of dollars in Advanced Microfabrication Equipment (AMEC), a Chinese company that makes the machinery needed to make chips. AMEC, a supplier to SMIC and other Chinese chipmakers, is critical to efforts to foster China’s chip manufacturing industry after the U.S. placed restrictions on sales of cutting-edge chip manufacturing machinery to China. be.
Chinese semiconductor companies receive generous funding from the country’s government. But relationships with U.S. venture capital firms not only provide Chinese companies with managerial expertise, but also access to technology and U.S. and European markets. U.S. venture capital firms are also trying to sway U.S. authorities and regulators on behalf of Chinese companies in their portfolios, such as TikTok.