The China committee of the US Home of Representatives has requested Sequoia Capital to supply particulars about investments in synthetic intelligence and different high-tech sectors within the nation made by the enterprise capital agency and its former Chinese language arm since 2010.
In a letter to Sequoia obtained by the Monetary Occasions, Mike Gallagher and Raja Krishnamoorthi, the highest Republican and Democrat on the congressional panel, respectively, requested Sequoia to record investments in teams growing AI, machine studying, chips and quantum which might be primarily based or have “vital operations” in China.
Sequoia has come underneath scrutiny from lawmakers amid safety specialists’ considerations about US capital flowing to teams in China that assist the nation’s army. It has additionally confronted criticism over investments made by its former affiliate, Sequoia Capital China. The arm is within the technique of splitting from Sequoia and is now known as HongShan.
The request for info comes 4 months after Sequoia moved to chop ties with the nation by splitting its enterprise within the US and Europe from entities that put money into China and India. Sequoia’s enterprise had been essentially the most profitable effort by a Silicon Valley agency to capitalise on China’s tech growth.
A number of folks with data of the agency’s transfer mentioned Sequoia had hoped it might ease scrutiny from US officers and lawmakers that has been rising amid hovering geopolitical tensions between Washington and Beijing.
“By splitting its US and PRC entities, Sequoia is taking a step in the precise path by lowering the move of US experience to problematic PRC firms,” Gallagher advised the Monetary Occasions.
“However this doesn’t resolve the deeper drawback — Congress wants to go laws to forestall People from funding the Chinese language Communist occasion’s army build-up and human rights abuses.”
Within the letter despatched on Tuesday, the lawmakers questioned if Sequoia’s determination to sever ties with its Chinese language arm — which can be finalised by March 31 — would insulate some capital flows from US regulatory scrutiny.
HongShan relied on restricted companions — the buyers in its funds — to finance its offers, they mentioned, so the break up would “not forestall continued funding by US institutional buyers into HongShan”.
The lawmakers mentioned HongShan was additionally “doubtless” to scrap the nationwide safety screening mechanism that Sequoia had created to guage investments by its firms as scrutiny rose in Washington.
Sequoia mentioned it might reply after reviewing the letter. A spokesperson mentioned that “since their inception, every entity working underneath the Sequoia model has been independently owned, had separate funding groups, managed their very own funds, and made unbiased funding selections”.
American restricted companions haven’t been focused by President Joe Biden or Congress, and various establishments that put money into HongShan are assured they are going to have the ability to proceed their relationship with the Chinese language agency after the Treasury finalises restrictions on outbound funding mandated by a White Home government order in August.
The letter additional accuses HongShan of funnelling US capital into investments that contributed to human rights abuses and army modernisation. HongShan mentioned there was “no fact” to claims that it invests in companies that function “towards our strict danger and compliance protocol, together with violation of human rights and army involvement”.
In a single instance, the committee mentioned HongShan had invested in a bunch known as DeepGlint whose facial recognition expertise was getting used to manage Uyghurs in Xinjiang. It mentioned Sequoia and HongShan had supplied capital to ByteDance, the mum or dad firm of the video social media app TikTok, which “exposes hundreds of thousands of People to CCP surveillance and affect”.
Krishnamoorthi advised the FT that the letter marked the “subsequent part” in an investigation into how US cash and experience was “fuelling Chinese language Communist occasion human rights abuses, army modernisation, and the technological development of a serious competitor”.
He added that it was essential to know how Sequoia and GGV, one other San Francisco-based enterprise capital agency that lately determined to hive off its Asia-focused enterprise, have been approaching funding in China.
The lawmakers have requested Sequoia to reply by November 1. Amongst their calls for was a request to determine any restricted companions in Sequoia Capital or HongShan which might be domiciled in China or that handle funds on behalf of state-owned or affiliated entities. It additionally requested Sequoia to substantiate that roughly 50 per cent of HongShan’s restricted companions are US buyers.
Extra reporting by Kaye Wiggins in Hong Kong