EGN NEWS DESK
A congressional investigation has decided that 5 American enterprise capital companies invested greater than $1 billion in China’s semiconductor trade since 2001, fueling the expansion of a sector that the United States authorities now regards as a nationwide safety menace.
Funds equipped by the 5 companies — GGV Capital, GSR Ventures, Qualcomm Ventures, Sequoia Capital and Walden International — went to greater than 150 Chinese corporations, in keeping with the report, which was launched Thursday by each Republicans and Democrats on the House Select Committee on the Chinese Communist Party.
The investments included roughly $180 million that went to Chinese companies that the committee mentioned straight or not directly supported Beijing’s navy. That consists of corporations that the U.S. authorities has mentioned present chips for China’s navy analysis, gear and weapons, comparable to Semiconductor Manufacturing International Corporation, or SMIC, China’s largest chipmaker.
The report by the House committee focuses on investments made earlier than the Biden administration imposed sweeping restrictions aimed toward chopping off China’s entry to American financing. It doesn’t allege any illegality.
In August, the Biden administration barred U.S. enterprise capital and personal fairness companies from investing in Chinese quantum computing, synthetic intelligence and superior semiconductors. It has additionally imposed worldwide limits on gross sales of superior chips and chip-making machines to China, arguing that these applied sciences might assist advance the capabilities of the Chinese navy and spy businesses.
Since it was established a yr in the past, the committee has referred to as for elevating tariffs on China, focused Ford Motor and others for doing enterprise with Chinese corporations, and spotlighted compelled labor considerations involving Chinese purchasing websites.
The report beneficial that Congress curb investments in all Chinese entities which might be topic to sure U.S. commerce restrictions or included on federal “crimson flag” lists, in addition to their dad or mum corporations and subsidiaries. That would come with corporations that work with the Chinese navy or have ties to compelled labor in China’s Xinjiang area. The U.S. authorities must also contemplate imposing controls on different industries, like biotechnology and fintech, the lawmakers mentioned.
Sequoia mentioned in June, earlier than the committee introduced its investigation into personal funding, that it could separate its China arm from its U.S. operations and rename it HongShan. Just a few months later, GGV Capital mentioned it could separate its Asia-focused enterprise.
Walden didn’t reply to a request for remark. A consultant from GSR declined to remark. GGV supplied an inventory of corrections and clarifications to the report and acknowledged that it had been in compliance with all relevant legal guidelines. GGV can be attempting to promote its stakes in three corporations mentioned within the report.
A Sequoia spokeswoman mentioned the agency took U.S. nationwide safety points critically and had at all times had processes in place to make sure compliance with U.S. legislation. The agency accomplished its cut up from HongShan on Dec. 31.
A Qualcomm spokeswoman mentioned its investments had been small in contrast with these of the enterprise capital companies and made up lower than 2 % of the investments mentioned within the report.
Officials in Washington more and more see enterprise ties even with personal Chinese know-how corporations as problematic, arguing that China has tried to attract on the experience of the personal sector to modernize its navy.
Committee leaders conceded that many of those investments had been made when the United States was encouraging better financial engagement with China.
“We all made this guess 20 years in the past on China’s integration into the worldwide financial system, and it was logical,” mentioned Representative Mike Gallagher of Wisconsin, the committee’s chairman. “It simply occurred to have failed.” He added, “Now, I simply I feel there’s no excuse anymore.”
The 57-page report attracts on info supplied to the committee by the companies about their investments, in addition to interviews with senior executives at a number of companies.
The committee’s report checked out simply among the funding flowing to China. Between 2016 and July 2023, Chinese semiconductor corporations raised $8.7 billion in offers that included U.S. funding companies, in keeping with PitchBook, which tracks start-up funding. That funding peaked in 2021.
Venture capital companies pursued aggressive international growth, significantly into Asia, for a number of a long time. But they’ve identified for the reason that Trump administration took a extra aggressive stance towards China that investments in Chinese corporations can be topic to rising scrutiny.
“No one is touching China now,” mentioned Linus Liang, an investor on the enterprise agency Kyber Knight Capital.
Splitting off funding entities with ties to China, as Sequoia and GGV did, could not resolve the committee’s considerations that American financing and know-how will find yourself in Chinese corporations, the report acknowledged. Sequoia’s newly separated Chinese-based agency, HongShan, counts U.S. buyers amongst its backers. And HongShan and GGV’s new unit, GGV Asia, might nonetheless put money into U.S. start-ups, the report mentioned.
Much of the report focuses on Walden International, a California-based firm that was one the earliest and most influential international buyers within the Chinese chip sector. Walden is led by Lip-Bu Tan, a former chief government of Cadence Design Systems, a chip design agency, and a present member of Intel’s board.
Walden International created varied funds for the chip sector in partnership with the Chinese authorities and Chinese state-owned corporations, together with a outstanding navy provider, the report mentioned.
It was a founding shareholder and early supply of financing for SMIC, which is now topic to U.S. commerce restrictions due to its ties to the Chinese navy. Walden gave $52 million to SMIC over a number of a long time, the committee discovered, in addition to tens of thousands and thousands of {dollars} to SMIC associates. Mr. Tan additionally served on SMIC’s board of administrators.
He is credited with bringing SMIC and different companies a mix of financing, instruments and mental property for chip design, in addition to worthwhile connections with prospects.
While the U.S. authorities labeled SMIC a “trusted buyer” in 2007, skepticism of the corporate’s actions has grown in Washington in newer years. Today, the corporate is vital to China’s ambitions to create a thriving chip sector and reduce its dependence on the United States.
Walden, together with Qualcomm Ventures, the investing arm of chipmaker Qualcomm, invested tens of thousands and thousands of {dollars} into Advanced Micro-Fabrication Equipment, or AMEC, a Chinese firm that makes the machines wanted to fabricate chips. AMEC, a provider to SMIC and different Chinese chipmakers, is important to China’s efforts to construct up its chip-making trade after the United States positioned restrictions on promoting China probably the most superior chip-making machines.
China’s semiconductor corporations are properly funded by the nation’s authorities. But ties with U.S. enterprise capital companies present Chinese corporations with managerial experience in addition to entry to know-how and the American and European markets. American enterprise capital companies have additionally tried to sway U.S. officers and regulators on behalf of Chinese corporations of their portfolio, like TikTok.
