U.S. Venture Firms’ China Tech Deals Investigated by Congress Panel

A clutch of American venture-capital firms are being investigated by a congressional committee over their funding of Chinese tech companies—part of a push in Washington to scrutinize and potentially ban such deals.

The House’s select committee on the China threat this week notified GGV Capital, GSR Ventures, Walden International and Qualcomm Ventures—the investment arm of chip company Qualcomm Inc. —that the panel is examining many of their investments in Chinese companies involved in semiconductors, artificial intelligence and quantum computing.  

Those Chinese companies, the committee said, threaten U.S. national security and have been involved in human-rights violations. By extension, the American firms’ investments “directly contribute” to those human-rights abuses, China’s military modernization and its effort to supplant U.S. technological leadership, according to letters sent to the venture firms and reviewed by The Wall Street Journal.

GSR said the partners who worked on the deals in question are no longer at the firm. GGV declined to comment, while the other two firms didn’t immediately respond to requests for comment.

Set up this year and formally known as the Select Committee on the Chinese Communist Party, the committee is increasingly targeting the role of American businesses in abetting Beijing’s superpower ambitions. Its work is emblematic of a shift in thinking in the White House and on Capitol Hill that once supported U.S. business ties with China but now see some investment as counter to American interests.

Especially problematic are investments that may help China develop technology that could end up being used against the U.S. in a potential military conflict or assist Beijing in building its surveillance state.

“We shouldn’t be funding our own destruction,” the panel’s chairman, Rep. Mike Gallagher (R., Wis.), said in an interview. 

While the committee doesn’t have lawmaking authority, it does have subpoena powers. Gallagher said the goal of the investigation is to compile a record that would help Congress pass a strong bill to restrict problematic investment in China.

The Senate is discussing an amendment filed by Sens. Bob Casey (D., Pa.) and John Cornyn

Both the proposed Senate amendment and the executive order have been subject to lobbying from the business community, according to people involved in the process. As a result, the amendment lacks an earlier version’s mechanism to review or block such investments. 

The select committee, in its letters, gave the venture firms, all of them based in California, until July 26 to respond. 

The letters called out GGV and Qualcomm Ventures for having invested in Megvii Technology Ltd. and SenseTime,

The committee also cites in its letters Walden’s investment in Semiconductor Manufacturing International Corp., or SMIC, China’s largest chip maker. The U.S. in 2020 restricted exports to SMIC because of its support for the Chinese military. GSR was cited for investments in artificial intelligence and semiconductor companies.

The Chinese tech companies didn’t respond to requests for comment. The Chinese embassy in Washington said “the U.S. has politicized and weaponized economic and technological issues, seriously violating the principles of market economy.” It criticized the select committee for “spreading the ‘China threat’ theory and making slanderous attacks on Communist Party of China.”

The information the committee is seeking from the venture firms includes details of the Chinese companies they have invested in, management advice they have given and the role of the Communist Party in the companies.

Gallagher said this venture-capital probe is the first of a series of investigations that the committee plans to conduct into the relationships between the investment world and the party. A future target, Gallagher said, is Sequoia Capital.  

Sequoia, a venture-capital icon for investments in Apple and TikTok owner ByteDance, drew the ire of Washington China hawks because of a series of Chinese tech investments made by its China unit. Following two years of scrutiny from the White House and Capitol Hill, Sequoia in June said that the firm would break up into separate independent entities for the U.S., China and other areas. 

While the move could insulate Sequoia’s U.S. arm from Washington policy debates, it doesn’t preclude major U.S. institutional investors from continuing to invest their money in Chinese tech companies through the Sequoia China spinoff.

Gallagher said, despite the split, he still has unanswered questions about Sequoia’s decision to break up as well as its current operations.

Write to Kate O’Keeffe at [email protected] and Berber Jin at [email protected]