TL;DR:
- House Select Committee expresses “serious concern” over US venture capital firms investing in Chinese tech startups.
- Letters were sent to GGV Capital, GST Ventures, Qualcomm Ventures, and Walden International.
- Lawmakers focus on investments in Chinese AI, chipmakers, and quantum computing companies.
- Concerns raised over potential ties to profiling and tracking of Uyghur ethnic minorities in China.
- Bipartisan effort to increase pressure on US investments in China amid escalating tensions.
- Qualcomm Ventures, GGV Capital, and Walden International are highlighted in the letters.
- GGV Capital was identified as having the most potentially problematic investments.
- Congress aims to establish controls on US capital flowing to China and prevent funding of its own decline.
- US Commerce Department is considering additional restrictions on AI-related chip exports to China.
- Growing pressure on VC firms with significant investments in China due to intellectual property theft concerns.
Main AI News:
In a move that underscores mounting concerns over national security and the escalating tensions between the United States and China, the House Select Committee on the Chinese Communist Party has directed its attention towards four prominent US venture capital firms. The committee, led by Wisconsin Republican Mike Gallagher and Illinois Democrat Raja Krishnamoorthi, has expressed “serious concern” regarding these firms’ investments in Chinese technology startups.
The letters, recently made public, were sent to GGV Capital, GST Ventures, Qualcomm Ventures, and Walden International. The committee’s primary focus lies on investments in artificial intelligence, chipmakers, and quantum computing companies in China. Of particular concern are the potential ties between these companies and the profiling and tracking of Uyghur ethnic minorities in China.
The legislators highlighted the significance of semiconductors for artificial intelligence, quantum computing, and other advanced dual-use technologies, emphasizing that the Chinese Communist Party considers their domestic development a top priority. The lawmakers seek to address these critical issues and ensure that US venture capital firms are fully aware of the potential ramifications of their investments.
As of now, the venture firms in question have not provided any comments in response to the letters. This bipartisan effort reflects the growing pressure on US investments in China, with both political parties seeking to curb such activities to protect American interests. Notably, US Treasury Secretary Janet Yellen and Secretary of State Antony Blinken have recently engaged in diplomatic efforts to stabilize relations with China.
The letters from Gallagher and Krishnamoorthi highlight specific investments made by Qualcomm Ventures, including their involvement in SenseTime, a company that The New York Times has linked to the Chinese tracking and profiling of the Uyghurs. PitchBook data reveals that other US firms, such as Tiger Global Management and Silver Lake, have also invested in SenseTime before its IPO in 2021.
Qualcomm’s investment in Denglin Technology, a potential competitor, is also under scrutiny. Congress is examining Qualcomm’s role as one of Denglin’s earliest backers and its participation in a 2022 funding round. However, Silver Lake has not yet responded to requests for comment.
The most potentially problematic investments, according to the committee’s letter, are associated with GGV Capital, a prominent venture capital firm with a strong presence in China. Independent researchers at Georgetown’s Center for Security and Emerging Technology have identified 43 different investments made by GGV Capital in Chinese AI companies between 2015 and 2021, more than any other firm.
GGV Capital, with $9.2 billion in assets under management, has been operating in China since 2005 and has invested in major Chinese companies like Alibaba, ByteDance (the parent company of TikTok), and Didi (a ride-hailing company). The committee specifically points out GGV’s investment in Megvii, a Beijing-based facial recognition software provider, as a cause for concern due to its alleged support for the surveillance of Uyghurs.
Walden International, a smaller venture firm, has been highlighted as a significant backer of Chinese AI companies, with at least 39% of their AI deals between 2015 and 2021 focusing on this sector. The committee’s letter mentions Walden’s investment in Intellifusion, a now blacklisted company, which has since gone public and has a market cap of approximately $3 billion.
The committee also shed light on GSR Ventures, stating that the firm was among the top U.S.-located investors in PRC artificial intelligence companies between 2015 and 2021. The lawmakers cited 33 distinct investments made during this period, including Horizon Robotics, which held a private valuation of $5 billion in 2021.
Congressman Gallagher has been a vocal advocate for imposing controls on US investments in critical technologies in China. Following discussions with Silicon Valley executives earlier this year, he expressed cautious optimism regarding the implementation of sensible controls on American capital flowing to China. Gallagher stressed the importance of preventing US funds from inadvertently supporting their own decline or contributing to China’s advancement in the race for AI supremacy.
The US Commerce Department has also contemplated measures to prevent China from excessively leveraging US technologies to further its AI efforts. According to reports from The Wall Street Journal, the agency is considering additional restrictions on advanced chips used in AI that could be exported to China.
Conclusion:
The House Committee’s scrutiny of US venture capital investments in Chinese AI highlights the increasing concerns over national security and intellectual property protection. This bipartisan effort signifies a growing sentiment to limit US capital flowing to China and safeguard American interests. The potential imposition of controls and restrictions may have significant implications for the market, impacting the investment landscape and shaping future strategies for venture capital firms operating in China. The heightened scrutiny also underscores the importance of due diligence in evaluating the potential risks and implications associated with investments in Chinese tech startups.
