Politics

Major US Investment Firm Lobbied Washington To Overlook Chinese Arm As Partner Hobnobbed With CCP: REPORT

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A top executive at U.S. investment firm Sequoia Capital tried to persuade the Biden administration its Chinese arm did not pose a national security threat while the managing partner of the firm’s Beijing-based branch was deeply involved with the Chinese government, according to The Wall Street Journal.

Sequoia Capital broke off from Sequoia Capital China, now called HongShan, after pressure mounted from Washington and Congress over the venture firm’s massive investments in Chinese technology competitors and possibly even Chinese military contractors, the WSJ reported, citing people familiar with the matter. Sequoia chief policy officer in Washington Don Vieira’s efforts to maintain the firm’s innocence amid the accusations — explaining that Sequoia China makes decisions independent of the U.S.-based entity and was not permitted to invest in Chinese defense firms, even though Sequoia China founder and managing partner Neil Shen was an active member of a Chinese Communist Party body — failed to convince the Biden administration, according to the outlet.

The White House is expected to roll out a policy in July implementing severe restrictions on U.S. investment in Chinese companies, Bloomberg reported. Funding companies known to support China’s People’s Liberation Army has been banned since 2021.

U.S. institutional investors backed Sequoia China in its latest funding round ending July 2022, according to the WSJ and a Daily Caller News Foundation review of public records.

The record $8.5 billion funding pool flooding Chinese companies alarmed Washington and increased the pressure on the Silicon Valley firm to establish independence from the Beijing venture.

Kurt Campbell, the administration’s senior policy officer for East Asia, asked Vieira after the summer 2022 investment round why Sequoia continued to bankroll companies that could threaten U.S. national security despite the administration’s opposition, the WSJ reported, citing people familiar with the interaction. Vieira responded that Sequoia China does not finance firms associated with the Chinese military, but also does not dictate the Chinese unit’s investments.

In April 2022, Neil Shen, who founded and served as managing partner of Sequoia Capital China since 2005, had lost a bid to take over control of the consolidated firm, the WSJ reported.

Shen held regular meetings with CCP officials and was a member of the Chinese People’s Political Consultative Congress, the CCP’s political advisory body, until January 2023, according to The Information. His close ties with the Chinese government further disturbed Sequoia’s relationship with Washington, the WSJ reported.

Shen’s venture firm backs ByteDance, TikTok’s parent company and apparently encouraged TikTok to strike a security deal with the Biden administration in exchange for U.S. privileges.

In 2021, a Georgetown University think tank discovered that 4Paradigm, an artificial intelligence start-up Sequoia Capital China backed, provided surveillance services for the PLA.

“Sequoia China doesn’t invest in businesses that operate for the purpose of facilitating or providing support to the Chinese military,” a company spokesperson said, according to the WSJ. Sequoia Capital affirmed the statement.

But, bolstered by Sequoia’s branding, the Chinese operation under Shen attracted major U.S. institutional investors, including the University of Texas Investment Management Company (UTIMCO), the University of Washington Investment Management Company (UWINCO) — both in the 2022 funding round — and Children’s Hospital Corporation Pension Plan, according to data from Pitchbook. UWINCO invested $20,000,000, according to public disclosure records.

The funds target Chinese start-ups in the technology, healthcare and consumer sectors, Reuters reported, citing a person familiar with the matter who was not permitted to speak publicly because the information is private.

Even then, China’s civil-military fusion policy codifies exploitation of ostensibly private companies to further the PLA’s goal to “develop the most technologically advanced military in the world,” according to the State Department.

“The CCP is systematically reorganizing the Chinese science and technology enterprise to ensure that new innovations simultaneously advance economic and military development,” the State Department wrote in 2021.

UTIMCO, UWINCO, Children’s Hospital Corporate Pension Plan and the White House did not immediately respond to the DCNF’s requests for comment.