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A congressional investigation has decided that 5 American enterprise capital corporations invested greater than $1 billion in China’s semiconductor business since 2001, fueling the expansion of a sector that the USA authorities now regards as a nationwide safety menace.

Funds provided by the 5 corporations — GGV Capital, GSR Ventures, Qualcomm Ventures, Sequoia Capital and Walden Worldwide — went to greater than 150 Chinese language corporations, based on the report, which was launched Thursday by each Republicans and Democrats on the Home Choose Committee on the Chinese language Communist Occasion.

The investments included roughly $180 million that went to Chinese language corporations that the committee stated instantly or not directly supported Beijing’s navy. That features corporations that the U.S. authorities has stated present chips for China’s navy analysis, tools and weapons, reminiscent of Semiconductor Manufacturing Worldwide Company, or SMIC, China’s largest chipmaker.

The report by the Home committee focuses on investments made earlier than the Biden administration imposed sweeping restrictions geared toward slicing 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 corporations from investing in Chinese language 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 may assist advance the capabilities of the Chinese language navy and spy companies.

Because it was established a 12 months in the past, the committee has known as for elevating tariffs on China, focused Ford Motor and others for doing enterprise with Chinese language corporations, and spotlighted pressured labor considerations involving Chinese language procuring websites.

The report advisable that Congress curb investments in all Chinese language entities which are topic to sure U.S. commerce restrictions or included on federal “crimson flag” lists, in addition to their mum or dad corporations and subsidiaries. That would come with corporations that work with the Chinese language navy or have ties to pressured labor in China’s Xinjiang area. The U.S. authorities must also think about imposing controls on different industries, like biotechnology and fintech, Consultant Raja Krishnamoorthi of Illinois, the committee’s rating Democrat, stated.

Sequoia stated in June, earlier than the committee introduced its investigation into non-public funding, that it might separate its China arm from its U.S. operations and rename it HongShan. A number of months later, GGV Capital stated it might separate its Asia-focused enterprise.

Walden didn’t reply to a request for remark. A consultant from GSR declined to remark. GGV offered an inventory of corrections and clarifications to the report and said that it had been in compliance with all relevant legal guidelines. GGV can be making an attempt to promote its stakes in three corporations mentioned within the report.

A Sequoia spokeswoman stated the agency took U.S. nationwide safety points severely and had at all times had processes in place to make sure compliance with U.S. legislation. The agency accomplished its break up from HongShan on Dec. 31.

A Qualcomm spokeswoman stated its investments have been small in contrast with these of the enterprise capital corporations and made up lower than 2 % of the investments mentioned within the report.

Officers in Washington more and more see enterprise ties even with non-public Chinese language know-how corporations as problematic, arguing that China has tried to attract on the experience of the non-public sector to modernize its navy.

Committee leaders conceded that many of those investments have been made when the USA was encouraging larger financial engagement with China.

“All of us made this wager 20 years in the past on China’s integration into the worldwide financial system, and it was logical,” stated Consultant Mike Gallagher of Wisconsin, the committee’s chairman. “It simply occurred to have failed.” He added, “Now, I simply I believe there’s no excuse anymore.”

The 57-page report attracts on info offered to the committee by the corporations about their investments, in addition to interviews with senior executives at a number of corporations.

The committee’s report checked out simply among the funding flowing to China. Between 2016 and July 2023, Chinese language semiconductor corporations raised $8.7 billion in offers that included U.S. funding corporations, based on PitchBook, which tracks start-up funding. That funding peaked in 2021.

Enterprise capital corporations pursued aggressive international enlargement, notably into Asia, for a number of a long time. However they’ve recognized for the reason that Trump administration took a extra aggressive stance towards China that investments in Chinese language corporations can be topic to rising scrutiny.

“Nobody is touching China now,” stated 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 language corporations, the report said. Sequoia’s newly separated Chinese language-based agency, HongShan, counts U.S. traders amongst its backers. And HongShan and GGV’s new unit, GGV Asia, may nonetheless put money into U.S. start-ups, the report stated.

A lot of the report focuses on Walden Worldwide, a California-based firm that was one the earliest and most influential international traders within the Chinese language chip sector. Walden is led by Lip-Bu Tan, a former chief government of Cadence Design Programs, a chip design agency, and a present member of Intel’s board.

Walden Worldwide created numerous funds for the chip sector in partnership with the Chinese language authorities and Chinese language state-owned corporations, together with a distinguished navy provider, the report stated.

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 language 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’s credited with bringing SMIC and different corporations a mix of financing, instruments and mental property for chip design, in addition to worthwhile connections with clients.

Whereas the U.S. authorities labeled SMIC a “trusted customer” in 2007, skepticism of the corporate’s actions has grown in Washington in newer years. As we speak, the corporate is essential to China’s ambitions to create a thriving chip sector and reduce its dependence on the USA.

Walden, together with Qualcomm Ventures, the investing arm of chipmaker Qualcomm, invested tens of thousands and thousands of {dollars} into Superior Micro-Fabrication Tools, or AMEC, a Chinese language firm that makes the machines wanted to fabricate chips. AMEC, a provider to SMIC and different Chinese language chipmakers, is important to China’s efforts to construct up its chip-making business after the USA positioned restrictions on promoting China essentially the most superior chip-making machines.

China’s semiconductor corporations are effectively funded by the nation’s authorities. However ties with U.S. enterprise capital corporations present Chinese language corporations with managerial experience in addition to entry to know-how and the American and European markets. American enterprise capital corporations have additionally tried to sway U.S. officers and regulators on behalf of Chinese language corporations of their portfolio, like TikTok.

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