US Investment Restrictions Scares American Investors from China Market
Be it geopolitics or technology, the US has pushed China into a tight corner. And now Biden’s executive order that restricts investments in China, is taking toll on Chinese businesses. It has also dealt a massive blow to China’s ambitions to become a global power in AI.
The US Treasury is considering a ban on tech that enables production or improvement of advanced integrated circuits, design, fabrication, and packaging capabilities for advanced integrated circuits; and installation, or sale to third-party customers, of certain supercomputers. It is also looking at a ban on transactions involving the production of quantum computers, sensors and systems.
Washington raised concerns that quantum information technologies could compromise encryption and other cybersecurity controls and jeopardize military communications. Restrictions are also on software using artificial intelligence (AI) systems designed for exclusive military, government intelligence, or mass-surveillance use.
Ben Harburg, managing partner at MSA Capital, says the damage has been done. He believes a lot of people will be scared away from the China market. “We will avoid sectors that we think are at risk or may fall foul of current or future US sanctions.”
Elton Jiang, founding partner at Shanghai-based Genilink Capital, said American investors will not only stop putting money into certain sectors but may also divest from companies in existing portfolios to comply with new restrictions. He highlighted that the biggest disruption from new investment restrictions will be the deterrence factor for potential investors in China.
Jiang said US dollar limited partners (LPs) come from all over the world, including America, the Middle East, and Southeast Asia. “Historically LPs from the US account for the most significant share of all types of dollar LPs. The investment restrictions will make the LPs have second thoughts about allocating any money to China.”
A source said many small Chinese start-ups aim to supply state-backed companies when their products are ready or they go public on the mainland’s tech-heavy STAR market. Moreover, companies have long separated US funds and yuan funds for investment targets in China’s semiconductor industry.
However, for some companies local yuan funding can never make up for the loss of US dollar funds because it has long investment maturity and high-risk tolerance.