Five U.S. venture capital firms invested more than $3 billion in Chinese technology companies linked to the country's military, surveillance and human rights abuses, a House committee alleged in a report released Feb. 8.
The report, unveiled by the House Select Committee on the Chinese Communist Party, investigated five venture capital firms: GGV Capital, GSR Ventures, Sequoia Capital, Walden International and Qualcomm Ventures, the investment arm of Qualcomm.
Specifically, the report found, the companies collectively invested more than $1.9 billion in artificial intelligence companies associated with China's military, surveillance and human rights abuses, and more than $1 billion in over 150 semiconductor companies.
"Decades of investment — including funding, knowledge transfer, and other intangible benefits — from U.S. VCs have helped build and strengthen the PRC's (People's Republic of China's) priority sectors," the report says.
As a result, the report states that instituting restrictions on outbound investments in China is imperative.
To conduct the investigation, the committee collected investment information from the firms and interviewed senior executives. The committee launched investigations into four of the firms in July, then started investigating Sequoia Capital in October.
"Some of the VCs have divested from certain investments," the report notes, and several of the firms told the committee they invested in China during a time when the U.S. government saw such investments as a positive.
Additionally, in 2023, both Sequoia Capital and GGV Capital announced they would be splitting their China funds into separate entities, according to the report. Sequoia Capital split its China business into a new entity, HongShan, while GGV Capital split its business in two, with one focused on the U.S. and one on China.
"Qualcomm Ventures invests in companies worldwide as part of its engagement with the global technology ecosystem," a Qualcomm spokesperson said in an email. "Qualcomm's investments are generally small in any given market compared to venture firms and constitute less than 2% of the total investments discussed in today's report."
GGV Capital, GSR Ventures, Sequoia Capital and Walden International did not immediately respond to requests for comment.
In August, President Joe Biden issued an executive order prohibiting new venture capital, private equity and joint venture investments in Chinese companies linked to the semiconductors and microelectronics, quantum information technologies and artificial intelligence sectors.
In an October letter, Reps. Mike Gallagher, R-Wis.,and Raja Krishnamoorthi, D-Ill., who lead the House Select Committee on the Chinese Communist Party, called on Treasury Secretary Janet Yellen to "urgently" implement the order and also signaled that Congress should pass legislation further restricting investments in China, as they call for in the Feb. 8 report.
"Congress should pass legislation to generally prohibit investment in PRC companies included on key U.S. government sanctions and red flag lists," the lawmakers wrote in the report.
At a hearing in late January, the House Financial Services Subcommittee on National Security also discussed different legislative options for building on Biden's executive order and restricting certain investments in China.
