Although it's against the law, U.S.-based investment firms continue to help the Chinese military through their foreign branches, Klon Kitchen, a senior fellow with the American Enterprise Institute, wrote in a Substack article published by the Dispatch on May 12.
He cited Sequoia Capital; a venture capital firm headquartered in California that has its Asian office in Beijing.
It has invested in companies like 4Paradigm that are helping the Chinese military "develop and to field technologies that will directly threaten U.S. personnel and interests," Kitchen wrote.
"The company is currently helping the Chinese military deploy its Sage HyperCycle capability, an 'automatic decision-making machine learning platform,'” Kitchen wrote.
"The Chinese navy, as just one example, is thought to be using this platform for combat tasking and 'intelligent loss management.' Put simply: If the United States were to go to war with China, this software suite would likely be used by the Chinese to kill our sailors and to defeat our ships. Sequoia is the company’s largest foreign investor, and this is only one of the problematic investments."
Nearly $124 billion of $6.15 trillion in 2020 U.S. Foreign Direct Investment (FDI) went to China, with $2.5 billion in U.S. venture capital going to the Chinese technology industry, Kitchen wrote.
It's already illegal for U.S. companies the law to support anyone on the Department of Commerce’s Denied Persons List, the Unverified List, the Entity List, or the Military End User (MEU) List, Kitchen wrote. The same is true for companies on the U.S. Treasury Department’s Specially Designated Nationals List and Chinese Military-Industrial Complex Companies List and other lists of banned companies.
"But new Chinese companies are not automatically added to these lists, and all of the lists suffer from not being able to scale enforcement to match the challenge," wrote Kitchen. "Even more, often all a Chinese company must do to evade these sanctions is legally change its name and then it’s back in the game. The quickest, most efficient way to handle this challenge would be for American investment entities to police themselves and some certainly are. But those investors who are holding out are causing the U.S. government to consider more aggressive action. "
Members of the U.S. The House and Senate are currently negotiating over the final contents of the National Critical Capabilities Defense Act, Kitchen wrote.
It would create a government entity to review “supply chain security, domestic production and manufacturing capacities of identified National Critical Capabilities,” and “establish an outbound investment review which covers proposed offshoring of U.S. production, development, manufacturing, or fabrication of identified critical national capabilities for foreign adversaries, like China and Russia,” he wrote.
"It’s immoral and self-defeating for us to enrich ourselves by enabling the world’s largest human rights abuser and our chief geopolitical competitor," Kitchen wrote. "There’s also very little proof that this financial support buys influence over these organizations because, at the end of the day, venture funds don’t have armies and prisons—the Chinese Communist Party does. If a U.S.-based investment firm cannot prevent its foreign branch from supplying the Chinese military, it’s time to cut off that branch."
The House and Senate are expected to meet today to begin reconciling differences and negotiate the final contents of the United States Innovation and Competition Act (USICA), a massive investment in countering China's influence. The Senate passed their version of the USICA on March 28, which included policies targeting China and bolstering the United States' relationship with Taiwan.