International venture capital firms that have invested in leading Chinese e-commerce retailers are facing heightened scrutiny from the U.S. House of Representatives Select Committee on the Chinese Communist Party.
In a report issued 8 February 2024, the bipartisan congressional panel claimed U.S. venture capital firms have invested more than USD 1.9 billion (EUR 1.8 billion) in Chinese groups involved in developing artificial intelligence technology and at least USD 1.2 billion (EUR 1.1 billion) into entities that help China develop its chip industry to further its “military, genocidal, and techno-totalitarian ambitions.”
“Foreign venture capital investments, particularly from the United States of America, have been key for China to become a world leader in science and technology, specifically in the fields of artificial intelligence and semiconductors,” a video summary of the report said. “U.S. venture capital firms have financed Chinese companies that serve as core building blocks in [Chinese President] Xi [Jinping’s] ‘Great Wall of Steel’ and acutely threaten our own national security.”
The committee issued two recommendations: that the U.S. government restrict U.S. investment in entities tied to the Chinese military, or its repression of its Uyghur minority, and that it codify restrictions on U.S. investment in areas related to China’s critical and emerging technologies.
“We must act now and stop fueling our own destruction,” the committee said.
The committee’s investigation centered on five of the top U.S. firms investing in Chinese AI and semiconductor companies: Sequoia Capital, Qualcomm Ventures, Walden International, GSR Ventures, and GGV Capital.
That attention could have consequences for overall investment in Chinese firms, as well as their IPO prospects. American venture capital firms have frequently invested in Chinese firms that eventually listed on public exchanges based in New York, which have vast liquidity pools.
Specifically, Sequoia was an early investor in Shanghai-based online grocer Ding Dong Mai Cai and was a key backer of Chinese tech stocks Alibaba, ByteDance, and Shein, while GGV Capital has invested in Shi Hui Tuan, another e-commerce platform that lets users band together to purchase fresh food, including seafood, in bulk.
Shanghai-based Ding Dong Mai Cai has been keen to grow it sales of seafood, which attracts relatively high margins. The company is “working to modernize China’s traditional agricultural supply chain through standardization and digitalization, empowering upstream farms and suppliers to make their production more efficient and tailored to actual demand,” according to its website.
American lobbying firms have also faced scrutiny from the committee for their work in China. Politico reported the committee is considering creating a black list of American lobbying firms working for Chinese companies associated with Chinese security services prevented from entering the U.S. market.
In recent months, foreign investors have been exiting their holdings of Chinese shares due to a mix of apprehension over the fate of the Chinese economy but also higher interest rates in the U.S.
Foreign entities owned CNY 2.8 trillion (USD 390 billion, EUR 358 billion) of onshore Chinese equities at the end of 2023, down 13 percent year over year in value terms, according to data published by the People’s Bank of China.
