Zhang Shoucheng was a renowned physicist at Stanford University with a number of academic prizes to his name.
His scientific discoveries earned him a spot in the U.S. honorary society National Academic of Sciences, in 2015.
A year earlier, Zhang and his team’s research in a material called a topological insulator—which led to the discovery of a new state of matter—led Thomson Reuters to predict that his team would win the Nobel Prize in physics. They didn’t win, but the research was seen as critical for further developing semiconductor chips with a greater storage and processing capacity.
That is an innovation the Chinese regime is especially keen on getting its hands on. China’s lagging domestic semiconductor industry has forced it to rely on foreign-imported chips for manufacturing electronic devices. But because it wants to become a tech-manufacturing superpower, Beijing has resorted to economic espionage, aggressive business acquisitions, and other underhanded tactics to seek an edge over Western competitors.
These methods were described in detail by the U.S. Trade Representative’s Section 301 report on China’s intellectual property theft practices released in March—findings that led the United States to impose punitive trade tariffs on Chinese goods. In a November update to the Section 301 report, a new section appears on how the Chinese regime has established a presence in Silicon Valley, with an eye toward investing, then eventually accessing vital technology from U.S. startups.
Mentioned in the report is Digital Horizon Capital, a venture capital (VC) firm founded by Zhang.
On Dec. 1, Zhang died unexpectedly at the age of 55, after a battle with depression, according to an email sent by Zhang’s family and obtained by the South China Morning Post.
Sean McCormack, who said he was a family spokesman, confirmed that Zhang committed suicide, in an email on Dec. 6.A look into Zhang’s history and his venture capital firm’s funding reveal a systematic scheme by the Chinese regime to poach cutting-edge technology developed in Silicon Valley.
Zhang’s Background
Zhang was born in Shanghai and attended Fudan University, one of China’s most prestigious schools, according to Chinese media reports. He later came to the United States and in 1987, obtained a doctoral degree in physics at State University of New York, Stony Brook, according to his online CV. His research in the realm of quantum physics caught the attention of the Chinese regime.
Zhang was recruited under the Thousand Talents program—a Beijing-led effort to attract top scientists and engineers from overseas to work in China—in 2008 to conduct research at Tsinghua University, another top school, according to a Jan. 2018 article published on the website of Beijing-based think tank Center for China and Globalization.
The article explains that Zhang helped advance quantum research in China, crediting him with helping to develop the “first-ever China research lab that produced a physics academic paper worthy of the Nobel prize.” The lab was a collaboration between Tsinghua and the state-run Chinese Academy of Sciences. Of note is that Zhang was selected as an academician at the Chinese Academy.
The Thousand Talents website also recently cited in a Nov. 2018 post that Zhang was hired onto a team of “overseas strategic scientists” to establish a “special committee” in Silicon Valley. This committee would help “promote the development of Beijing’s high-tech industry”—in other words, recruit other scientists to work for the benefit of the Chinese regime’s goals.
Zhang made clear his desire to assist the Chinese regime. In an interview published in January by Chinese news portal Sina, he expressed that his VC firm would help “bring back the front-lines of research to China.”
Zhang’s Company
In fact, Zhang’s VC firm has caught the U.S. administration’s attention for being the recipient of Chinese state funding. In an update to the Section 301 report released in November, Digital Horizon Capital (DHVC), previously named Danhua Capital, is listed as an example of China’s “web of entities” established in Silicon Valley “to further the industrial-policy goals of the Chinese government.”
Such VC firms invest in a wide range of startups, then “to varying degrees have access to information, technology, and the ability to influence and potentially coerce management,” according to the Section 301 update.
Digital Horizon Capital traces its funding to Chinese state-affiliated entities. An investment arm of the state-owned firm Zhongguancun Development Group (ZDG) has backed a number of VC firms in Silicon Valley, including DHVC.
When DHVC was first established in 2013, Beijing’s mayor attended the company’s signing ceremony in Silicon Valley, according to the report. A press release on the ZDG website explained that DHVC would focus on innovative tech developed at Stanford and other nearby universities, for the purpose of steering projects to Beijing’s Zhongguancun tech hub to commercialize.
“Zhongguancun capital goes out and foreign advanced technology and human capital is brought in,” the press release read.
ZDG’s investment arm helped convince Chinese tech giants Alibaba and Baidu to contribute to DHVC’s first round of funding, raising the total to about $91 million, according to the report. iFlyTek, a Chinese voice-recognition company that has received Chinese state funding and works closely with China’s Ministry of Industry and Information Technology, has invested $5 million in DHVC.
BOE Technology Group Co., a tech firm that counts the Chinese regime as its biggest shareholder, invested about 60 million yuan ($8.9 million).
The report noted that Meta, an augmented-reality startup that’s among the 113 companies in DHVC’s portfolio, announced in September that it would lay off half its employees in Silicon Valley and move operations to China, “after the Chinese government pressured Chinese investors.”
DHVC also invests in Cohesity, a data management company that counts the U.S. Department of Energy and U.S. Air Force as clients, according to a Reuters report.
Scrutiny of VC Investment
The issue of Chinese VC funding for U.S. startups has set off alarms with U.S. authorities over the potential for poaching U.S. technology. In August, U.S. Congress passed the Foreign Investment Risk Review Modernization Act, which would provide more scrutiny powers to the Committee on Foreign Investment in the United States (CFIUS), a federal agency that reviews business deals with potential national security risks.
CFIUS now has the power to “review any foreign investment, both direct and indirect, that may give the investor access to non-public technical information, or board or observer rights,” according to the U.S. Treasury Department, which oversees CFIUS regulations.
Global law firm DLA Piper noted on its website that startups and their investors now will need to consider the new regulations with regards to foreign funding.
Cathy He and Daniel Holl contributed to this report.
This article was updated to provide confirmed details on Zhang’s death.
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