House Select Committee On The Chinese Communist Party Releases Findings Of Bipartisan Investigation Into Five US Venture Capital Firms - Corporate and Company Law

Adding to the ongoing discussion on proper restrictions on outbound investments by US persons in China-related companies, on February 8, 2024, Chairman of the House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party ("CCP") (the "Select Committee"), Mike Gallagher (R-WI-8),¹ and Ranking Member of the Select Committee, Raja Krishnamoorthi (D-IL-8), released the findings of their bipartisan investigation into certain US venture capital firms. The investigation set out to determine the relationship between these firms, the People's Republic of China ("PRC"), and the "explosive growth in two advanced technology sectors: artificial intelligence (AI) and semiconductors."

The lawmakers found these firms "invested at least $3 billion in, and provided expertise and other benefits to," PRC "critical technology companies, including many aiding the Chinese military, surveillance state," or activities inconsistent with US policies and values.

Relating to AI, the Report found the five firms invested:

more than $1.9 billion into AI companies "that support the CCP's human rights abuses, surveillance state, or the People's Liberation Army (PLA)";
more than $130 million into PRC AI companies "blacklisted by the U.S. government";
more than $20 million into AI companies "supporting the CCP's surveillance state and companies associated with forced labor";
over $1 billion into ByteDance, a PRC internet technology company that owns Tiktok;
more than $190 million into AI companies "that are now blacklisted by the U.S. government for supporting the PRC's military"; and
"[a]nother $140+ million into AI companies that support the PLA."

Relating to semiconductors, the Report also found the five firms invested:

more than $1 billion into more than 150 semiconductor companies;
more than $50 million into PRC's top semiconductor chip manufacturer, SMIC;
"[m]ore than $35 million into a semiconductor company after it was blacklisted by the U.S. government for supporting the PLA";
"[t]ens of millions of dollars into semiconductor companies backed by and receiving subsidies from the PRC government"; and
"[m]ore than $180 million into semiconductor companies that support the PLA."

Following its findings, the Select Committee recommended the US adopt "robust PRC outbound investment restrictions in key strategic sectors" by restricting "U.S. investment in entities tied, directly or indirectly to the PLA, or forced labor" and human right violations. It also recommended that the US implement several investment restrictions in sectors related to the PRC's "critical and emerging technologies, military capabilities, and human rights abuses."

The Select Committee's investigation and report demonstrate US lawmakers' continuing, critical view of China-related investments; in particular, their concerns relating to China's growing semiconductor and AI sectors. Interested parties should continue to monitor US actions in response to the Select Committee's investigative findings, as well as proposed legislations and the ongoing rulemaking process by the US Department of the Treasury on US outbound investments in Chinese companies.

Footnote

1. Representative Gallagher has announced that he will resign from Congress on April 19. Representative John Moolenaar (R-MI-2) will serve as the next head of the Select Committee.

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