US lawmakers accuse VC firms of funding Chinese military-linked firms

FILE PHOTO: House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party holds hearing on Capitol Hill in Washington

WASHINGTON (Reuters) -Sequoia Capital China, Qualcomm Ventures and three other venture capital firms plowed at least $3 billion into Chinese tech companies that support Beijing's military and its repression of minorities in Xinjiang, a U.S. congressional report alleged on Thursday.

The House of Representatives' select committee on China, led by Republican Congressman Mike Gallagher, released the report, which also scrutinizes investments made by GGV Capital, GSR Ventures and Walden International in Chinese artificial intelligence and semiconductor firms with unsavory ties.

The Committee called on the Biden administration to restrict U.S. investment in Chinese firms sanctioned by the U.S. government over ties to China's military or its repression of minorities and urged it to bolster recent U.S. curbs on U.S. investment in China to include more sectors.

"The status quo is untenable... Decades of investment—including funding, knowledge transfer, and other intangible benefits—from U.S. VCs have helped build and strengthen the PRC’s (People's Republic of China) priority sectors,” the report said.

GGV Capital said in a statement it planned to separate into two independent firms by the end of March: GGV Capital U.S. and GGV Capital Asia. It said the companies have been in compliance with all applicable laws and regulations.

Richard Lim, managing director of GSR Ventures, declined comment. Sequoia Capital China, now known as HongShan, Walden International and the White House did not respond to requests for comment. Qualcomm Ventures could not be reached for comment.

A Sequoia Capital spokesperson said that, as of Dec. 31, 2023, Sequoia Capital (the US/Europe venture business), HongShan (formerly known as Sequoia China), and Peak XV (formerly known as Sequoia India/SEA) are fully independent firms with distinct brands. "Sequoia Capital continues to focus on investing in technology companies in the U.S. and Europe," its spokesperson said. "We take U.S. national security issues seriously and have always had processes in place to ensure compliance with U.S. law."

The Chinese Embassy in Washington said the use of national security and human rights as a pretext to restrict U.S. investments in China "will undermine the principle of free trade..., destabilize the chains and serve the interests of no one."

(Reporting by Alexandra Alper and Karen Freifeld; Editing by David Gregorio)