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CHINESE money continues to flow into Silicon Valley despite growing economic and geopolitical tensions between China and the U.S. in recent years.
As much as $880 million of Chinese investment has landed in Silicon Valley so far in 2022, according to a recent report by the Foundation for Defense and Democracy (FDD). The report seeks to estimate how much money has flowed from China to American venture capital firms.
According to FDD researchers Emily de La Bruyère and Nathan Picarsic, since 2010 as much as $4 billion of Chinese money has flowed into American venture capital funds, and another $3.5 billion has come through private equity.
The report titled The Weaponization of Capital shows that, contrary to the belief that China is distancing itself economically from the United States, capital from the Asian giant continues to flow to numerous American start-ups.
This is how Chinese money leaks into the U.S. economy
Venture capital is fundamental to the development of the U.S. economy as it allows money to be brought to entrepreneurs who are venturing into technological solutions to various problems, cutting-edge technology in which China has an interest.
A recent Harvard Business School study, which analyzed foreign capital investment in American start-ups from 1974 to 2015, concluded that while foreign investment in these business models brought benefits to the economy, it also brought with it risks leaking knowledge that maintains America’s competitive advantage to the outside world.
The authors of the Harvard study recommend that “it may be optimal for the U.S. government to raise their costs to deter investments.”
The FDD study acknowledges that while there are bureaucratic tools to prevent knowledge leaks, the U.S. National Security apparatus “is ill-suited to assess and respond to the strategic risk of Beijing’s weaponization of capital, in part as a result of the influence that capital affords.”
Several Chinese organizations funded directly by the state have invested in American start-ups.
China Investment Corporation (CIC) is the world’s largest sovereign wealth fund, managing up to $1 trillion in assets. By virtue of its scale and state mandate, CIC leads China’s foray into the global private equity market. CIC’s investments and partners internationally enable the Chinese state to connect to control critical avenues of influence.
Since its inception in 2007, CIC has made up to 117 U.S. equity investments, including limited partnerships with major investment firms such as Blackstone, Goldman Sachs and Carlyle.
China’s sovereign wealth funds, a gateway to evade U.S. sanctions
According to the FDD, Beijing may use the position of its sovereign wealth funds as investors in U.S. equity to obtain privileged information.
Following House Speaker Nancy Pelosi’s visit to Taiwan, the tense relations between the two powers further escalated.
Under both Donald Trump and current President Joe Biden, the United States has sought to reduce U.S. economic dependence on Chinese imports.
The Chip Act that seeks to bring funding to U.S. semiconductor manufacturers is a clear attempt by the government to reduce dependence in a key sector on Chinese manufacturers, who control up to 16% of global microchip manufacturing.
Among the rules established by the Chip Act are important restrictions imposed on U.S. semiconductor manufacturers to prevent American state-of-the-art technology from getting into the hands of the Chinese government.
The influence of Chinese capital over various American companies could undermine the Federal Government’s efforts to control the leakage of valuable information and technology that could be used by Beijing in fields opposed to U.S. interests.
Economist, writer and liberal. With a focus on finance, the war on drugs, history, and geopolitics // Economista, escritor y liberal. Con enfoque en finanzas, guerra contra las drogas, historia y geopolítica