Sat, Jan 12, 2019 - Page 9 News List

Chinese tech investors flee Silicon Valley amid US crackdown

By Heather Somerville  /  Reuters, SAN FRANCISCO

A dearth of Chinese money is unlikely to spell doomsday for Silicon Valley. Investors worldwide poured more than US$84 billion into US start-ups in the first three quarters of last year, exceeding any prior full-year funding, according to data provider PitchBook Inc.

Still, Chinese funders are critical to helping US companies gain access to the world’s second-largest economy.

Kahn acknowledged that rejecting Chinese investment might make his start-up’s overseas expansion more difficult.

“Those of us who are operators and entrepreneurs feel the brunt of these tensions,” he said.

It is a radical shift for Silicon Valley. Money has historically flowed in from every corner of the globe, including from geopolitical rivals such as China and Russia, largely uninhibited by US government scrutiny or regulation.

Reid Whitten, an attorney with Sheppard Mullin, said that of the six companies he recently advised to get CFIUS approval for their investment offers, only two have opted to file the paperwork. The others abandoned their deals or are still considering whether to proceed.

“It is a generational change in the way we look at foreign investment in the United States,” Whitten said.

The decline in Chinese investment comes amid heightened tensions between Beijing and Washington. Trump has blasted China for its enormous trade surplus and for what he claims are its underhanded strategies to obtain leading-edge American technology.

The nations have already levied billions in tariffs on each other’s goods. Trump is considering an executive order to bar US companies from using telecommunications equipment made by China’s Huawei and ZTE, which the US government has accused of spying.

CFIUS is emerging as another powerful cudgel. Led by the US Department of the Treasury, it includes members from eight other government entities, including the departments of defense, state and homeland security. The secretive committee does not disclose much about the deals it reviews, but its most recent annual report said that Chinese investors made 74 CFIUS filings from 2013 to 2015, the most of any nation.

The president has the authority to make the final decision, but a thumbs-down from CFIUS is usually enough to doom a deal.

Washington demonstrated its tougher stance even before the new law was passed, when Trump in March blocked a US$117 billion hostile bid by Singapore-based Broadcom Ltd to acquire Qualcomm Inc of San Diego.

CFIUS said that the takeover would hamper the US in the race to develop the next generation of wireless technology.

A White House spokeswoman did not respond to a request for comment.

In November, CFIUS rolled out a pilot program mandating that foreign investors notify the committee of any size investment in certain “critical technologies.”

The scope of that term is still being defined, but a working list includes artificial intelligence, logistics technology, robotics and data analytics — the bread and butter of Silicon Valley.

Research firm Rhodium predicted that up to three-quarters of Chinese venture investments would be subject to CFIUS review under the new rules.

Just the threat of scrutiny has caused some Chinese investors to reconsider.

Peter Kuo, whose firm, Silicon Valley Global, connects Chinese investors with US start-ups, said his business has slumped dramatically.

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