Panel Slams US Investment Firms' China Collusion

Five US venture capital firms invested at least $3 billion in Chinese critical technology companies, many aiding the Chinese military, surveillance state or Uyghur genocide in Xinjiang, according to a new report from the House Select Committee on China.

The committee’s investigation, launched by Chairman Mike Gallagher (R-Wisc) and ranking Democrat Raja Krishnamoorthi (Ill) found that the firms funneled over $1.9 billion to artificial intelligence companies that support China’s human rights abuses or military, and at least another $1.2 billion into China’s semiconductor sector – including semiconductor companies that advance the CCP’s military, genocidal and techno-totalitarian ambitions, the lawmakers said.

The five firms used as case studies in the investigation are GGV Capital, GSR Ventures, Qualcomm Ventures, Sequoia Capital China and Walden International.  The report also highlights other investments that may raise significant security or human rights concerns.

Untenable Status Quo

“The Committee’s findings suggest that there are billions of dollars beyond those captured in this
report that have flowed into PRC companies that support the PRC’s military, digital authoritarianism and efforts to develop technological supremacy and undermine American technological leadership,” the two lawmakers wrote in the report.

“The status quo is untenable...Decades of investment – including funding, knowledge transfer, and other intangible benefits – from US VCs have helped build and strengthen the PRC’s priority sectors.”

In certain cases, the lawmakers uncovered internal VC memorandums stating that Chinese investments were more attractive "if the company supported the Chinese government's surveillance state or its strategy for technological supremacy, designed to weaken the United States."

 The lawmakers also lay out how, beyond dollars, these investments provide credibility and know-how to problematic PRC companies.

Based on the report’s findings, the two lawmakers recommend the United States immediately:

• Restrict US investment in entities sanctioned or red-flagged by the US Government for ties to the People’s Liberation Army, or forced labor and genocide.
• Implement additional sectoral outbound investment restrictions in areas related to the PRC’s critical and emerging technologies, military capabilities, and human rights abuses, building upon those recently established through executive action for PRC AI, semiconductor and quantum computing companies.

Outbound Investment Legislation Proposed 

House Foreign Affairs Committee Chairman Michael McCaul (R-TX) issued a statement in support of the report.

“I commend Chairman Gallagher’s investigation highlighting the billions of dollars and intangible benefits U.S. venture capital firms have provided Chinese companies tied to the CCP’s military and human rights abuses.  Sanctions did not and cannot solve this problem – that’s why my bill H.R.6349, Preventing Adversaries from Developing Critical Capabilities Act, which would establish a sector-based outbound investment regime, is vital to combatting this problem. 

Full report available [HERE]