American VC Investment Linked to China's Rise in Chips and AI, Says Congressional Report

A congressional report, recently made public, implicates American venture capital firms in the rapid advancement of China's capabilities in semiconductor and artificial intelligence (AI) technologies. Despite significant efforts by the US to impede China's progress in these sectors, the report declares that US investment firms have played a part in fostering China's technological development.

The Findings of the Investigation

The House Select Committee on the China Communist Party conducted an investigation which uncovered that five venture capital firms—GGV Capital, GSR Ventures, Qualcomm Ventures, Sequoia Capital, and Walden International—have collectively channeled billions of dollars into Chinese technology firms. Connections between these firms and the Chinese military, as well as involvement in human rights abuses, have brought scrutiny to the nature of the investments.

The report states: "The transfer of sensitive technology to China is being inadvertently supported by US venture capital, which funds and assists the companies targeted by US regulations." The investments in question exceed $1.9 billion in AI firms and $1.2 billion in semiconductor companies known to be on US blacklists related to surveillance and human rights violations.

Investments in AI and Semiconductors

AI companies like Megvii, Intellifusion, SenseTime, DeepGlint, and Yitu, which were linked to the Chinese surveillance apparatus and accused of human rights violations, particularly against the Uyghur minority, were beneficiaries of this capital flow. In the semiconductor industry, the mention of Walden's early backing of Semiconductor Manufacturing International Co. (SMIC), now a leading player in high-end chip production, underscores the influence of US financing.

Yet, beyond monetary investments, the report criticizes the venture capitalists for their 'intangible' support such as consulting services, help with talent acquisition, and facilitating market access. A case in point is Lip-Bu Tan, Walden International chairman and former CEO of Cadence Design Systems, who provided critical industry insights while holding positions on the boards of Chinese companies like SMIC.

US Regulations and VC Actions

The US has enacted various measures to restrict China's access to semiconductor technologies, including export controls and investment prohibitions in entities supporting military endeavors. Some venture firms have split their operations to adhere to these executive orders, but doubts linger on whether this will effectively halt the flow of American investments into China's tech sector.

While these investments predate Biden's ruling against them, the committee challenges the previous legality by pointing to China's military-civil fusion policy, which suggests any tech could eventually have military employments. The report calls for legislation that further restricts US investments in critical and emerging Chinese technologies.

Investment, China, Technology