Five U.S. venture capital companies have invested an estimated $3 billion in Chinese advanced technology that congressional investigators say is bankrolling the Chinese military and fueling human rights abuses.
The House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party contended in a new report that the American funds are invested in cutting-edge technology in China, especially in the areas of artificial intelligence and advanced semiconductors.
The report, made public late last week, warned that billions of dollars from U.S. investment firms also is undermining U.S. technology leadership and policies designed to prevent China from advancing its communist system.
The flow of deals by venture capital companies, known as VCs, is “untenable” and requires new restrictions on capital flows to the People’s Republic of China, the report warned.
“Decades of investment — including funding, knowledge transfer and other intangible benefits — from U.S. VCs have helped build and strengthen the PRC’s priority sectors,” the report said. “This bell cannot be unrung. Simply put, robust PRC outbound investment restrictions in key strategic sectors are a national security and human rights are imperative.”
The panel investigated five U.S. venture capital companies: GGV Capital, GSR Ventures, Qualcomm Ventures, Sequoia Capital, and Walden International. Spokesmen for the companies did not immediately respond to email requests for comment.
The five companies supplied information to the committee for its probe and made executives available for interviews with investigators.
Based on the five firms’ activities, the committee concluded that U.S. funding linked to the Chinese military and human rights abuses could be far greater than the $3 billion traced during the probe.
As relations between Washington and Beijing have deteriorated in recent years, some of the VCs are divesting from China. At least one, Sequoia Capital, told investigators its original investments were made when the U.S. government was encouraging doing deals with Chinese firms.
China currently is cracking down on U.S. businesses in China under new national security laws. American business people have been detained or blocked from leaving the country. Some employees were interrogated as part of the crackdown. One unidentified venture capital firm told the committee that the Beijing government pressured American venture capital companies against cooperating with the probe.
Civil-military ‘fusion’
China is pursuing technological supremacy over the United States under a program called military-civil fusion that requires all civilian know-how to be available for China‘s military buildup.
U.S. military commanders have testified to Congress that the Chinese buildup is the largest arms buildup since the Soviet Union in the 1970s.
China is “actively seeking out and using advancements in artificial intelligence and in semiconductors to facilitate the PRC’s repressive surveillance state and enhance its military capabilities,” the report said, adding that the military-civil linkage assured that “no technology company in the PRC is truly a private company.”
“This is especially relevant in the venture capital space, because start-ups that begin with a civilian purpose may be leveraged for military ends or to advance the [ruling Communist Party’s] authoritarianism at home and abroad,” the report said.
China‘s efforts to develop artificial intelligence are key to achieving technology supremacy in areas ranging from manufacturing to warfighting and internal political control, the report said.
“The [People’s Liberation Army] is using AI to advance its intelligence, surveillance, reconnaissance, and command and control capabilities,” the report said. “This includes leveraging AI to make split-second wartime decisions and to detect U.S. ships and aircraft quickly and accurately. The committee‘s investigation confirmed that U.S.-based venture capital firms have invested in PRC companies that contract with the PLA.”
Venture capital investment in China increased during the mid-2000s and sharply expanded in the following decade under the policy that trade and investment would lead to economic liberalization.
“Unfortunately, we have seen the opposite. As U.S. capital flows into PRC advanced technology companies grew, the PRC channeled technological advances to facilitate the regime’s authoritarian surveillance state and human rights abuses and propel the PRC’s military modernization,” the report said.
The capital flows undercut U.S. economic sanctions and other measures designed to prevent Beijing from acquiring foreign intellectual property and technological know-how, the report said. The report supported legislation to ban all U.S. investment in Chinese companies linked to the military and human rights abuses.