若离若离 ・ Feb. 9, 2024
US Lawmakers Accuse Five VCs of Investing in China's AI and Semiconductor Firms
A House select committee on China said more than $1 billion investment of US VCs into a total of more than 150 Chinese semiconductor companies, and over $50 million out of them into SMIC. And Investments of these VCs made related to AI include over $1 billion into ByteDance.

BEIJING, February 9 (TMTPost)-- A U.S. House of Representative committee accused five American venture capital firms (VCs) of investing in China’s firms in artificial intelligence (AI) and semiconductor sectors.

Credit:Visual China

Credit:Visual China

Five U.S. VCs including GGV Capital, GSR Ventures, Sequoia Capital China, Qualcomm Ventures and Walden International have made investments worth at least US$3 billion into China’s technology companies to help develop sensitive industries involved in semiconductors, AI and quantum computing, according to a report by the House select committee on China released on Thursday. The committee said it examined these VCs to better understand whether and how American capital and expertise have supported China's technological advancement, and found they made such sizeable investments in semiconductor and AI and provide intangible support to companies in the targeted sectors.

The investigation of the committee, led by Wisconsin Republican Michael Gallagher, outlined the investments these five VCs made related to AI include over $1.0 billion into TikTok owner ByteDance, which was alleged to support China’s digital authoritarianism and presents a threat to U.S. national security. The committee noted, at the report, more than $1.0 billion into a total of more than 150 Chinese semiconductor companies, and over $50 million out of them into Semiconductor Manufacturing International Corporation (SMIC), beginning one year after  establishment of China’s largest semiconductor foundry. In addition, tens of millions of dollars flowed into semiconductor companies backed by and received subsidies from the Chinese government.

Specifically, the report pointed out Sequoia Capital and its affiliate HongShan, formerly named as Sequoia Capital China, have collectively invested $1.411 billion into ByteDance starting March 2014, facilitating the company’s overseas expansion. Other major U.S. VCs and other investors hold large stakes in the company, and some of these investors retain board seats. Neil Shen, head of HongShan, serves as a board member to date.

Qihoo 360, a cybersecurity leader blacklisted by the U.S. Commerce Department and Defense Department, is another Chinese firm that attracted Sequoia Capital’s considerable investments in AI, according to the report. HongShan has input $48 million in total in Qihoo 360, and its first batch of investment took place in 2006, the next year after the company’s founding. Neil Shen remained on Qihoo’s board until 2020. The report claimed HongShan invested $36 million into DJI from August 2014, seven years before the Chinese drone manufacturer was blacklisted by the U.S. Treasury Department.  It was added into a blacklist by the U.S. Pentagon in October 2022. Walden International has also invested in DJI, and one of its partners reportedly served as DJI’s executive vice chairman of innovation.

Per statistics of the report, Walden is the biggest VC investor in China’s semiconductor companies, and also acts as critical source of funds and expertise for SMIC in the company’s early days. Walden was reported to  invested $52 million into SMIC, with its first investment coming in 2001, about a year after the Shanghai-based company was established. Besides funding, Walden has provided SMIC with hands-on expertise, the report said. It cited Walden founder Lip-Bu Tan for an instance. Tan, who served as CEO of U.S. semiconductor firm Cadence Design Systems, was compensated hundreds of thousands of dollars in salary and stock options for his tenure as a SMIC board member from 2001 to 2018.

In addition to SMIC, Walden has invested into an ecosystem of SMIC affiliates such as SJSemi, according to the report. The VC made an investment of more than $35 million into SJSemi in October 2021, about a year after SJSemi was blacklisted by the U.S. Commerce Department, and has not exited that investment yet. The report added multiple U.S. firms have also invested in GalaxyCore, a fabless image sensor company and early partner of SMIC, and Walden alone has invested in $38 million. GalaxyCore became SMIC’s “largest local customer” in 2008, and several years later, GalaxyCore’s CEO called SMIC as the company’s “most trusted foundry partner”,  the report cited Chinese media.

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