The US Treasury Department is reviewing a Benchmark Capital-led $75 million investment in Chinese startup Manus AI, according to two people familiar with the matter, the latest example of an intensifying tech race between the two countries.

The Silicon Valley firm recently received an inquiry from the department into whether the financial backing is covered by new restrictions on investments in artificial intelligence and other key technologies that are destined for “countries of concern,” the people said.

The law, centered on the Outbound Investment Security Program, was part of a 2023 executive order signed by then-President Joe Biden, but did not go into effect until earlier this year. It requires any US entity or person to notify the Treasury Department of investments in key areas, such as AI, that could “accelerate and increase the success of the development of sensitive technologies” against US interests.

Benchmark and Treasury declined to comment. Manus did not respond to a request for comment.

The inquiry comes amid greater scrutiny of the US tech industry and its connections to China. After leading the AI race for decades, the US is rapidly losing ground to the world’s second-largest economy, which is publishing more research papers and showing its chops by releasing powerful AI models like DeepSeek R1 — which caused the stocks of certain US companies to plummet earlier this year.

When Manus released an impressive demo video in March, it was hailed as a “second DeepSeek moment.” The company showed how its AI agent could complete complex tasks on its own, from extensive research projects to autonomously creating mobile apps and websites.

Yet Benchmark was advised by multiple US law firms that the investment was not covered by the outbound investment restrictions, because Manus was not developing its own AI models. Instead, it was deemed a “wrapper,” the term for a company that builds products that utilize existing AI models.

Its lawyers also concluded the startup is not technically Chinese-based. Its parent company, Butterfly Effect, is incorporated in the Cayman Islands and its employees work in the US, Singapore, Japan and China, according to a person familiar with the matter. Manus stores all of its data on cloud servers outside of China that are operated by Western companies, the person said.

But the investment in Manus has drawn criticism from other Silicon Valley investors like Josh Wolfe, co-founder of Lux Capital, who posted on X that the investment “makes zero sense.”

“I am not saying Benchmark partners are Chinese assets… But they are def assets to China,” posted Delian Asparouhov, a partner at Founders Fund who has criticized venture firms in the past for doing business in China.