The U.S. Congress still has a month of legislating ahead. If current conditions hold, China policy appears poised to dominate a significant portion of Capitol Hill’s time. In September, House Speaker Mike Johnson telegraphed his desire to restrict U.S. outbound investment to the People’s Republic of China (PRC), and moves in this direction are expected this fall.
This is essential and long overdue action.
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For years, American companies and venture capital firms (VCs) have enriched Chinese companies with direct ties to the People’s Liberation Army (PLA), complicit in the Uyghur genocide, and involved in the development of cutting-edge technologies that could prove decisive in the next war. Yet successive presidential administrations have been excruciatingly slow in halting the enrichment of America’s greatest national security threat.
The evidence of U.S. complicity in problematic PRC industries is overwhelming. According to a recent investigation by the House Select Committee on the Chinese Communist Party, just five American VCs “made investments worth at least $3 billion into PRC technology companies that facilitate human rights abuses including genocide, contract with the Chinese military, or strengthen the PRC’s semiconductor supply chains and advance China’s national security ambitions.”
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In particular, Walden International invested $2.2 billion into more than 140 Chinese semiconductor companies that play a critical role in Beijing’s Made in China 2025 strategy, which the Committee describes as “the PRC’s strategy to technologically surpass and dominate the United States.” Sequoia Capital, meanwhile, poured over $1.4 billion into ByteDance, TikTok’s Chinese parent company that has worked with the local government in Xinjiang to disseminate propaganda about the Uyghur genocide.
Of particular note is GGV Capital’s investment of $20 million in Megvii, a PRC surveillance tech company. Months before this decision, Megvii demonstrated its surveillance work at the Xinjiang Police Technical Equipment and Public Security Products Expo. That’s like investing in Volkswagen in 1944. When the Select Committee asked GGV about its investment in Megvii, executives insisted that the Chinese technology was meant for “civil purposes.”
Walden International, another U.S. venture capital firm, invested $65 million in Intellifusion, another PRC company with links to the Uyghur genocide. In 2016, a Walden investment director said he was “deeply impressed” with the company’s facial recognition technology. The very next year, Xinjiang authorities gave Intellifusion an award for its assistance in tracking and surveilling Uyghurs.
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Especially disturbing are these VCs’ investments in Chinese companies with ties to the People’s Liberation Army (PLA). In its investigation, the Select Committee found that U.S. VCs invested more than $140 million in PRC artificial intelligence companies with direct or indirect ties to the PLA. All this has happened while the U.S. government has sought to work with Beijing to limit the role of AI in next-gen warfare and nuclear weapons.
Even as Washington tries to limit Beijing’s AI dominance, in other words, American companies have bankrolled PLA advancements in that sphere. The contradiction is senseless and dangerous. It undermines America’s moral authority and national security.
How Congress resolves this problem is of utmost importance. While powerful in some contexts, a sanctions regime alone will have only limited impact in cutting CCP entities off from U.S. capital. Sanctions are company-specific and reactive in nature. With that approach, America invites a game of whack-a-mole, and it will lose.
A better approach is a sectoral ban on exporting goods, services, and technology. The Biden administration’s recent action along these lines is a step in the right direction, but is easily reversible and subject to lawsuits, which could delay its impact. Moreover, it doesn’t carry the proper funding to ensure dedicated enforcement.
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Perhaps the greatest need, though, is restricting investment in these problematic CCP entities, many of which are already sanctioned or designated on a host of U.S. government blacklists. This represents a critical loophole; if the Commerce Department already restricts exports to companies like DJI and Megvii, which have been identified as Chinese military firms, why does Washington still allow VCs to invest in them?
As it stands, Washington has permitted Wall Street to sow the seeds of America’s own demise. Reversing this state of affairs now falls to Congress.
Michael Sobolik is senior fellow in Indo-Pacific studies at the American Foreign Policy Council in Washington, DC, and the author of Countering China’s Great Game: A Strategy for American Dominance (Naval Institute Press, 2024). Follow him on X @michaelsobolik.
This article was originally published at www.washingtonexaminer.com
