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People’s Liberation Army (PLA) soldiers marched next to the entrance to the Forbidden City during the opening ceremony of the Chinese People’s Political Consultative Conference (CPPCC) in Beijing on May 21, 2020. Photo: AFP

IDG Capital works to rebut US ‘confusion’ over its inclusion on Pentagon’s list of companies with ties to China’s military

  • The company was surprised to discover its name on the list and said that it had not been consulted ahead of time or asked for information
  • The list, updated by the Pentagon last week, does not carry sanctions or other direct penalties

IDG Capital, a venture firm with offices in Beijing and Hong Kong, said it’s working to clear up “confusion” over its inclusion on a US Pentagon list of companies with ties to the Chinese military.

The company was surprised to discover its name on the list and said that it had not been consulted ahead of time or asked for information. The firm plans to seek clarification and redress.

“We are not a Chinese military company, nor do we have any association with the Chinese military, and we do not belong on this watch list,” a spokeswoman said in an email. “We are an international investment firm with investments in China and other parts of the world. We have a robust governance and compliance programme in place to ensure we comply with all applicable laws in all jurisdictions in which we operate.”

The list, updated by the Pentagon last week, is aimed at highlighting companies that work with the Chinese military, including by helping it to modernise and “ensuring it can acquire advanced technologies.” The list does not carry sanctions or other direct penalties.

However, there can be reputational consequences for being included, and other businesses and organizations may be reluctant to work with companies that are highlighted. “US companies might think twice about taking IDG money,” said H.K. Park, managing director at consultancy Crumpton Global, which is advising clients on scrutiny issues. And US investors “might think twice about investing in IDG’s funds.”

IDG appears to be the first investment firm to appear on the Pentagon’s list, Park said.

According to an email sent to its limited partner investors on February 1 that was reviewed by Bloomberg, IDG was initially unsure if it was the intended target for the list. “We are working with our counsel to look into this matter and are confident that any confusion should be resolved to our satisfaction,” the email stated.

IDG has invested in several US-based companies, ranging from Zoox, the self-driving car company, to Legendary Entertainment, the movie producer.

In 2021, IDG’s name came up in congressional testimony on the ties between capital markets and China’s military industrial complex. Nathan Picarsic, a senior fellow at the Foundation for Defense of Democracies, noted that IDG’s investors included prominent US foundations and retirement plans, and that the firm had backed companies including Qihoo 360 Technology. In 2020, the US Department of Commerce added internet security company Qihoo to its so-called entity list, which limits access to American technology among other restrictions due to national security concerns.

IDG was also an investor in SenseTime Group, an AI start-up that landed on the same entity list in 2019. Additionally, the firm made early investments in giant companies like Baidu, Tencent Holdings and Meituan.
In 2021, consumer electronics company Xiaomi, another IDG portfolio company, landed on the entity list and was removed months later after it filed suit against the US government. It called its inclusion unlawful and said it had no ties to the Chinese military.

The mandate to draw up the list was created by the National Defense Authorization Act of 2021.

IDG is one of the oldest venture firms in the market and has been in China since 1993. On its website the firm says it has invested in more than 1,600 companies, with 500 of them going public or getting acquired. Two years ago, the firm filed paperwork to raise US$900 million from investors for a new China fund.

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