VC Firms Investing in China’s Tech Companies Draw US House Panel Investigation

(Bloomberg) -- A US congressional committee is investigating four venture capital firms for their investment in Chinese technology companies, the latest sign of Washington’s increasing scrutiny of American funds suspected of helping develop sensitive industries in China.

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Investments by GGV Capital, GSR Ventures, Walden International and Qualcomm Ventures are being probed by the House select committee on China, led by Wisconsin Republican Michael Gallagher.

GGV declined to comment on Wednesday night. The other firms didn’t immediately respond to requests for comment.

The investigation, reported earlier by the Wall Street Journal, comes as Washington seeks to block China’s development of next-generation technology that officials worry will dominate the security and economic landscape — specifically semiconductors, artificial intelligence and quantum computing.

Both the White House and members of Congress are crafting policies to track and potentially block US investments in those fields in China, which they say are being used for human-rights abuses and advancing military capabilities.

Gallagher referred to the four firms on Wednesday as the committee’s “initial targets,” and said the investigation will inform the committee’s policy recommendations, including any requirements mandated by Congress to review outbound investment.

Gallagher said his two main concerns are that the Chinese companies receiving US investment could be contributing to human rights abuses in China’s Xinjiang region and helping the Chinese military develop sophisticated technology.

Read More: US Plans Narrow China Tech Investment Limits, Likely by 2024

“There’s no such thing as a truly private entity in China,” Gallagher told reporters Wednesday, a reference to China’s so-called military-civil fusion strategy. “Democrats and Republicans agree that we don’t want to be fueling our own destruction.”

The China committee, which was created earlier this year by House Speaker Kevin McCarthy, has subpoena power and is working on a report about US-China policy that will focus in large part on US business activity in the country.

The committee said in a letter to GGV that it’s being targeted for investments in AI developers, including Megvii Technology Ltd., and semiconductor firms. Qualcomm Ventures’s investment in SenseTime Group Inc. was also cited by the committee, among others.

Megvii and SenseTime in 2019 were placed on the so-called Entity List, which bars them doing business with American firms without US government approval.

Walden International was cited for its investment chipmaker Semiconductor Manufacturing International Corp., which was is also on the US blacklist.

The letters, which each refer to recent research on outbound US investment by Georgetown University’s Center for Security and Emerging Technology, requested the companies respond to questions by Aug. 1.

--With assistance from Mackenzie Hawkins, Sarah McBride and Lizette Chapman.

(Updates with GGV declining to comment, in third paragraph.)