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lIllustrated by Lily Ogburn.
WASHINGTON – U.S. venture capital firms have long invested in Chinese technology companies linked to China’s military and the persecution of Uyghurs. Now, with recent attention from Congress and declining public opinion toward China, these companies are pulling back from their involvement in China.
A bipartisan study released last month co-sponsored by Rep. Mike Gallagher (R-Wis.) and Rep. Raja Krishnamoorthy (D-Ill.) found that several leading Silicon Valley companies have He claims to have invested at least $3 billion in companies. The report claims these companies have contributed to China’s military and surveillance of the Uyghurs, a predominantly Muslim ethnic group indigenous to northwestern China.
Venture Capital Companies Cited – Sequoia Capital China; Walden International, Qualcomm Ventures, GSR Ventures, GGV Capital – invested in China’s AI and semiconductor sectors. The list includes $1.9 billion in AI companies and more than $1.2 billion in 150 semiconductor companies, which are “dual-use” technologies used for both civilian and military purposes. Some companies are blacklisted by the US government.
“We need to understand that every dollar given to Chinese AI companies, semiconductor companies, and other advanced dual-use technology companies is a dollar given to support the Chinese Communist Party.” [Chinese Communist Party] and People’s Liberation Army [People’s Liberation Army]” Congressman Gallagher said in a statement to Medill News Service. “It is necessary to cut off the flow of funds. We cannot afford to continue funding our own destruction. ”
In their report, the lawmakers warned that the study vastly underestimates the total amount of U.S. investment in China’s AI and semiconductor sector because the committee only investigated five venture capital firms. did. According to the Office of the U.S. Trade Representative, total U.S. direct investment in China was $126.1 billion in 2022.
Gallagher and Krishnamoorthi, who lead the House Select Committee on the Chinese Communist Party, launched an investigation in July 2023. Lawmakers sent letters to venture capital firms asking for information about the companies’ investments in Chinese companies.
Aiming for artificial intelligence
The report looked at AI companies that primarily develop technology used for facial recognition and surveillance by the Chinese military. The technology is being used to identify and track Uyghurs living in China, the report said.
For example, Megvii, the developer of Face++ facial recognition software, was one of the key companies investigated and has received more than $15 million from GGV Capital since 2019. In the year GGV invested in her Megvii, roughly two-thirds of Megvii’s revenue came from CCP surveillance projects. says the report.
After GGV Capital made its investment, Meghvi was placed on “several U.S. government red flag lists for its involvement in surveillance and tracking of Uyghurs in Xinjiang,” according to the report.
A spokesperson for GGV Capital told Tech Policy Press that the company is “actively seeking to exit” its investment with Megvii. The committee’s report noted that the company faces challenges in the demerger due to “limited market appetite to purchase shares.”
GGV Capital is also splitting into two separate entities, GGV Capital US and GGV Capital Asia, and the company expects to complete the transition by the end of March. According to a statement provided to Tech Policy Press, the separation will “separate all business and operational processes and operate as a separate and independent company.”
GGV Capital US said in a statement that it “does not invest in China.”
The committee’s report said efforts to separate from China were “a step in the right direction,” but Reps. Gallagher and Krishnamoorthy warned that “future U.S. capital in troubled Chinese companies is a step in the right direction.” Legislative measures are still needed to stop this trend.
When Megvii filed for an initial public offering on the Hong Kong stock market in late 2019, the company released a now-archived report stating that its contracts with customers meant that its technology was not intended for military use or human rights purposes, but for “civil purposes.” “It is required to be used only in “. violation.
GGV Capital told Medill News Service that the company is not “aware of the potential (or actual) potential for misuse of Megvii’s technology as an investment risk and that certain details become publicly known.” It was the first time I recognized it.”
According to the 2019 Megvii report, other major US financial companies, including Goldman Sachs, Citigroup, and JP Morgan, co-sponsored Megvii’s IPO. After Megvii’s 2019 IPO application expired, Megvii filed for a new IPO in Shanghai in 2021, with major US financial companies no longer listed as co-sponsors. However, despite the separation attempt, GGV Capital has not completely ended its relationship with Megvii.
Concerns about China’s dominance in microchips
According to the committee’s report, China also plans to dominate the semiconductor industry by 2030 by expanding domestic production and partnering with foreign companies. Semiconductors are essential components of electronic devices and are used in a variety of products from smartphones to weapons.
The investigation revealed that California-based venture capital firm Walden International is one of the largest investors in China’s semiconductor industry. The company may have invested up to $2.2 billion in China’s semiconductor sector. This includes a total of $125 million in investments in Semiconductor Manufacturing International Corporation (SMIC) and its affiliates, which currently supply multiple On the US blacklist.
Walden International did not respond to a request for comment.
Albert Keidel, an economist and professor at George Washington University who specializes in East Asia, said he was skeptical of the report’s findings. He argued that the survey mischaracterized corporate investments as risky, when in fact they are common in growing economies.
Keidel noted that the report emphasizes companies’ investments in dual-use technologies. He said there were “logical problems” with the report, noting that foreign investment in American companies such as Boeing could be interpreted as benefiting the U.S. military.
“Will a portfolio investment in a large Chinese company with a dual purpose really end up blocking Chinese technological progress?” Keidel said. “I really doubt it.”
Several companies gave similar responses to the survey results. The companies made their investments “at a time of optimism,” the report said.
“We need to face the fact that China is a capable government that is trying to improve living standards,” Keidel argued. “We are blaming other companies that are becoming successful and good competitors.”
Rep. Krishnamoorthi’s views on dual-use technology differed from Kaidel’s. Krishnamoorthi’s statement said the report showed investments in “sensitive sectors”, sometimes through blacklisted companies.
“Dual-use technology poses an inherent danger in the wrong hands through military applications,” Congressman Krishnamoorthy said in a statement. “Through its military buildup, ongoing genocide, and other human rights violations, the Chinese Communist Party has shown itself to be unworthy of suspicion.”
Consulting and intangible involvement
Beyond financial investments, some venture capital and consulting firms have been confirmed to provide intangible expertise and advice to Chinese companies supporting the military. According to the report, these services include talent acquisition, consulting, and job training.
According to the report, GGV Capital has collaborated with Tsinghua University to launch a financial training program for companies within the GGV ecosystem. Walden International reported that he “often assists portfolio companies with talent discovery, recommendations and connections with other investors, and corporate strategy issues.” The report notes that the company provided these services to SMIC.
Some consulting firms have also recently been found to be working with Chinese companies. financial times newspaper Last month, we reported that the Urban China Initiative, a think tank led by McKinsey & Company, advised the Chinese Communist Party and provided research to inform China’s 2016-2020 five-year plan.
In response, Congressman Gallagher issued a statement criticizing McKinsey.
“We have no choice but to conclude that McKinsey’s true mission is to make money, even if that money comes from genocidal communists,” said Congressman Gallagher. said the politicianst. “Companies like McKinsey that support the Chinese Communist Party in its efforts to destroy individual dignity and America’s global leadership should be prohibited from receiving taxpayer dollars.”
In response to the accusations made by financial times newspaper According to reports, McKinsey issued a statement claiming that “Urban China Initiative is not McKinsey and does not work on McKinsey’s behalf.”
McKinsey said UCI was co-founded in 2011 with Columbia University and Tsinghua University. The consulting firm denied working with China, saying “client work in China comes overwhelmingly from the United States, multinational corporations, and private Chinese companies.”
McKinsey shut down UCI in 2021 following recent trends of divestment of Chinese companies and separation from Chinese offices.
next step
Reps. Krishnamoorthy and Gallagher recommended that Congress pass a bill that would ban investments in Chinese companies on U.S. sanctions and red flag lists, including those listed under the Uyghur Forced Labor Prevention Act. It also recommended updating these lists to include more companies with ties to China’s technology industry.
“The committee’s findings go beyond the amounts identified in this report and show that Chinese companies that support the Chinese military, digital authoritarianism, and efforts to develop technological superiority and undermine U.S. technological leadership “This suggests that there are billions of dollars flowing in,” the report said.
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