Analysts and investors said Thursday that new restrictions on US investments in high-tech in China will exacerbate the downturn in deals between the world’s two largest economies and deal a “big blow” to Chinese start-ups.
And the Biden administration announced Wednesday that it would restrict investments in US venture capital and private equity firms, as well as joint ventures in Chinese artificial intelligence, quantum computing and semiconductors.
According to CNN, the proposed rules are subject to a 45-day public comment period.
It will then be turned into draft regulations that are expected to take effect next year. The executive order applies to investments in the cities of Hong Kong and Macao, as well as mainland China.
Although new measures are still taking shape, DCM, a Silicon Valley venture capital firm that manages more than $4 billion in investments, said the order would change the “method and structure” of its investments in one area: artificial intelligence.
“We are actively consulting with our legal advisors,” the company said, noting that it is not currently investing in the other affected sectors: chips or quantum computing.
She added that while the company also believes its potential investments in AI may not fall within those prohibited, it will “continue to exercise the necessary due diligence to adhere to and comply with the Executive Order.”
And the Biden administration announced a new ban on investments in China aimed at protecting national security
DCM is one of the most active US investors in Chinese startups known for backing big names in consumer technology such as music.ly, the short video platform that later became TikTo.
The American network quoted Edith Young, general partner at Race Capital, a Silicon Valley company that invests in early-stage businesses: “This is a big blow not only to the Chinese startup ecosystem. [ولكن] Also for the venture capital industry.”
She said the new decree indicated that Washington was “trying to ‘separate’ US and Chinese investment capital despite the administration’s insistence that it is not trying to stop trade with China.”
“This simply went too far,” added Young, whose company invests primarily in artificial intelligence, data and enterprise software in both the United States and China. Washington should not limit our freedom to invest.
The officials who announced the restrictions on Wednesday have repeatedly stressed that their goal is to prevent US capital from aiding the Chinese military rather than harming the Chinese economy.
“We are aware of the important role cross-border investment flows play in America’s economic vitality,” an official said in a phone call with reporters.
One of the main goals of the new measures is to limit China’s access to “intangible assets,” such as know-how or expert relationships that often accompany investment from venture capitalists or private equity firms.
And some investors say the damage to Chinese companies is inevitable, with the potential for a setback in US markets.
Losing access to networks of experts and knowledge will “make it difficult for Chinese start-ups to innovate and compete on a global scale,” Yeung said.
