US Venture Capital Firms Invest $3 Billion in China's AI & Semiconductor Industries: Investigation Report

US Venture Capital Firms Invest $3 Billion in China’s AI & Semiconductor Industries: Investigation Report

In a recent investigation report released by the US House select committee on the Chinese Communist Party, it has been concluded that five American venture capital firms invested a combined total of $3 billion or more in China’s artificial intelligence (AI) and semiconductor industries. The report highlights the investments made by GGV Capital, GSR Ventures, Qualcomm Ventures, Sequoia Capital, and Walden International, stating that they have collectively invested over $1.9 billion in Chinese AI companies, including more than $1 billion in ByteDance, the parent company of popular video-sharing app TikTok. The investigation also revealed that over $1 billion has flowed into more than 150 semiconductor companies in China, with Semiconductor Manufacturing International Corporation (SMIC) receiving over $50 million. However, it is worth noting that SMIC has been on the US government’s Entity List since 2020, which restricts it from purchasing tools from US suppliers without a special license.

The report emphasizes the significant impact of US venture capital investments in the Chinese market, stating that “decades of investment…from US VCs have helped build and strengthen the [People’s Republic of China’s] priority sectors.” The lawmakers behind the report argue that these investments have far-reaching consequences, not only in terms of national security but also human rights.

Furthermore, the congressional findings pointed out that beyond the documented investments, billions more in US money have been poured into China, supporting the country’s military, “digital authoritarianism, and efforts to develop technological supremacy and undermine American technological leadership.” The report emphasizes the urgent need for restrictions on US investment in key strategic sectors as a matter of national security and human rights.

The investigation, which began in July last year, initially involved four venture capital firms but was expanded to include Sequoia Capital in October. The inclusion of Sequoia Capital dealt a blow to US dollar-denominated funds in China, which have already been facing challenges due to the rise of many Chinese tech firms over the past two decades.

Responding to the report, a Qualcomm spokesperson stated that their venture capital unit invests globally as part of its engagement with the global tech ecosystem. They further clarified that Qualcomm’s investments in any given market are generally small compared to venture firms and constitute less than 2% of the total investments discussed in the report.

The lawmakers involved in the investigation have recommended immediate restrictions on US investment in entities sanctioned or red-flagged by the US government for their ties to the People’s Liberation Army or involvement in forced labor and genocide. They have also suggested additional outbound investment restrictions in areas related to China’s critical and emerging technologies, military capabilities, and human rights.

This report comes in the wake of US President Joe Biden’s executive order in August, which prohibited US private equity and venture capital investments in four Chinese tech sectors: AI, quantum computing, semiconductors, and microelectronics. The tensions between the US and China have already caused ruptures between American venture capital funds and Chinese tech start-ups, with Sequoia Capital and GGV Capital announcing separate business divisions focused on Asia and the US.

As the US Congress continues to explore methods to tighten restrictions on outbound investment in Chinese tech sectors, the rivalry between the two largest economies in the world continues to intensify. However, it remains to be seen how these recommendations and actions will shape the future landscape of venture capital investments and technological advancements between the US and China.