Marcia Clark 
A congressional investigation has identified that 5 American enterprise capital firms invested extra than $1 billion in China’s semiconductor field given that 2001, fueling the progress of a sector that the United States government now regards as a nationwide safety danger.
Funds provided by the 5 corporations — GGV Cash, GSR Ventures, Qualcomm Ventures, Sequoia Cash and Walden Global — went to extra than 150 Chinese companies, according to the report, which was introduced Thursday by the two Republicans and Democrats on the Dwelling Pick Committee on the Chinese Communist Occasion.
The investments included around $180 million that went to Chinese corporations that the committee said immediately or indirectly supported Beijing’s armed service. That includes businesses that the U.S. governing administration has reported supply chips for China’s navy investigation, products and weapons, these as Semiconductor Producing International Company, or SMIC, China’s biggest chipmaker.
The report by the House committee focuses on investments made in advance of the Biden administration imposed sweeping constraints aimed at slicing off China’s entry to American funding. It does not allege any illegality.
In August, the Biden administration barred U.S. enterprise money and non-public fairness corporations from investing in Chinese quantum computing, synthetic intelligence and highly developed semiconductors. It has also imposed all over the world limitations on gross sales of innovative chips and chip-generating equipment to China, arguing that these technologies could help progress the capabilities of the Chinese armed forces and spy businesses.
Given that it was set up a 12 months ago, the committee has termed for raising tariffs on China, specific Ford Motor and many others for performing company with Chinese corporations, and spotlighted compelled labor problems involving Chinese buying sites.
The report advised that Congress control investments in all Chinese entities that are subject to certain U.S. trade limits or involved on federal “red flag” lists, as properly as their father or mother firms and subsidiaries. That would incorporate organizations that get the job done with the Chinese military services or have ties to compelled labor in China’s Xinjiang location. The U.S. govt must also consider imposing controls on other industries, like biotechnology and fintech, Consultant Raja Krishnamoorthi of Illinois, the committee’s rating Democrat, claimed.
Sequoia said in June, in advance of the committee declared its investigation into private funding, that it would independent its China arm from its U.S. functions and rename it HongShan. A few months later on, GGV Money said it would different its Asia-focused business.
Walden did not respond to a request for remark. A consultant from GSR declined to remark. GGV furnished a checklist of corrections and clarifications to the report and said that it had been in compliance with all applicable regulations. GGV is also striving to promote its stakes in three firms discussed in the report.
A Sequoia spokeswoman mentioned the business took U.S. countrywide protection concerns significantly and experienced generally experienced procedures in location to assure compliance with U.S. regulation. The organization accomplished its split from HongShan on Dec. 31.
A Qualcomm spokeswoman explained its investments were being small compared with all those of the venture capital corporations and built up considerably less than 2 % of the investments mentioned in the report.
Officers in Washington more and more see enterprise ties even with private Chinese technology companies as problematic, arguing that China has tried to attract on the abilities of the non-public sector to modernize its military.
Committee leaders conceded that quite a few of these investments were made when the United States was encouraging bigger financial engagement with China.
“We all designed this bet 20 yrs ago on China’s integration into the world financial state, and it was logical,” reported Agent Mike Gallagher of Wisconsin, the committee’s chairman. “It just transpired to have unsuccessful.” He added, “Now, I just I think there is no excuse any more.”
The 57-website page report draws on information and facts presented to the committee by the companies about their investments, as perfectly as interviews with senior executives at various companies.
The committee’s report appeared at just some of the funding flowing to China. In between 2016 and July 2023, Chinese semiconductor providers raised $8.7 billion in bargains that included U.S. expenditure corporations, according to PitchBook, which tracks start off-up funding. That investment peaked in 2021.
Venture funds corporations pursued intense global expansion, particularly into Asia, for quite a few many years. But they have known considering that the Trump administration took a more aggressive stance toward China that investments in Chinese providers would be topic to escalating scrutiny.
“No 1 is touching China now,” said Linus Liang, an trader at the venture agency Kyber Knight Capital.
Splitting off investment decision entities with ties to China, as Sequoia and GGV did, may possibly not take care of the committee’s issues that American funding and technological know-how will close up in Chinese companies, the report mentioned. Sequoia’s freshly divided Chinese-centered business, HongShan, counts U.S. traders amid its backers. And HongShan and GGV’s new unit, GGV Asia, could nevertheless devote in U.S. start out-ups, the report said.
A great deal of the report focuses on Walden Worldwide, a California-primarily based company that was a single the earliest and most influential overseas traders in the Chinese chip sector. Walden is led by Lip-Bu Tan, a former chief executive of Cadence Design and style Programs, a chip structure organization, and a existing member of Intel’s board.
Walden Global created various money for the chip sector in partnership with the Chinese government and Chinese condition-owned organizations, which include a notable army provider, the report stated.
It was a founding shareholder and early supply of financing for SMIC, which is now topic to U.S. trade constraints for the reason that of its ties to the Chinese armed forces. Walden gave $52 million to SMIC about many many years, the committee discovered, as perfectly as tens of hundreds of thousands of dollars to SMIC affiliate marketers. Mr. Tan also served on SMIC’s board of directors.
He is credited with bringing SMIC and other firms a blend of financing, applications and intellectual property for chip style, as well as lucrative connections with buyers.
When the U.S. authorities labeled SMIC a “trusted customer” in 2007, skepticism of the company’s things to do has grown in Washington in far more the latest several years. Currently, the corporation is important to China’s ambitions to build a flourishing chip sector and lessen its dependence on the United States.
Walden, alongside with Qualcomm Ventures, the investing arm of chipmaker Qualcomm, invested tens of hundreds of thousands of pounds into Advanced Micro-Fabrication Machines, or AMEC, a Chinese company that tends to make the machines required to manufacture chips. AMEC, a supplier to SMIC and other Chinese chipmakers, is critical to China’s efforts to create up its chip-making industry immediately after the United States put limits on offering China the most highly developed chip-creating machines.
China’s semiconductor businesses are effectively funded by the country’s govt. But ties with U.S. enterprise money companies present Chinese organizations with managerial skills as properly as entry to know-how and the American and European marketplaces. American enterprise funds corporations have also experimented with to sway U.S. officers and regulators on behalf of Chinese businesses in their portfolio, like TikTok.
