Growing Sphere of Influence: China’s Overseas Tech Investments in Numbers

The US has, by far, been the main destination for Chinese tech investments. This is unsurprising, given that America is home to Silicon Valley and has been the leading technology power on the global stage since World War II.

For much of the 21^st century, China has been playing catch-up to the US, with Chinese companies facing long-running accusations of intellectual property theft. But what started with imitation has moved to a tight race for technology leadership between the two world powers.

For most of the past decade, China’s investments in US technology firms were limited to joint ventures or acquisitions. But as these restrictions were lifted, the number of venture capital flowing from China into the US has grown.

However, President Donald Trump has made it clear that he sees China’s overseas tech investments as a threat to American technological hegemony.

In recent years, the Committee on Foreign Investment has stepped in to prevent a number of Chinese private equity deals. In April 2019, the government agency forced health-tech company PatientsLikeMe to find a buyer after it compelled its majority owner from China to divest. In 2018, it blocked Chinese company Ant Financial from buying MoneyGram for $1.2bn, citing national security concerns.

China’s foreign direct investment – deals where a controlling stake is made – have been on the decline since 2016, when Trump came into office.

The uncertainty created by this clampdown has seen influential investors based in China, such as Kai Fu Lee, ring the warning bell that the US has become a less attractive place to invest. Despite this, VC funding continued to grow to record highs.

The sheer number of investments, however, shows how Trump faces an uphill struggle to scale back China’s presence in US tech. And with the 2020 presidential election around the corner, a victory for Democratic nominee Joe Biden could see a softer approach when it comes Sino-US relations.

Europe is home to thriving tech hubs that have produced many unicorns – startups valued at a billion dollars or more – such as Bolt, DarkTrace and Revolut. The swelling value of these startups has coincided with a growing number of Chinese investments. Over the past five years, the number of Chinese tech investments has grown at a rate of 39.5% per year.

“Europe has built an academic infrastructure of excellence in many fields, such as deep tech, health and mobility. This is very hard to replicate, and it means the European ecosystem will continue to produce tech startups that are interesting for all global investors, including those from China,” says Oliver Holle, managing partner at Speedinvest, a VC fund focusing on seed and early-stage tech startups across Europe.

Deteriorating US-China relations may have also benefitted European tech startups, as Chinese investors look for opportunities less affected by the political tensions.

“Over the last five years, the European startup ecosystem has matured on every level, and this has been noticed irrespective of the protectionist rhetoric coming from both the US and China,” says Holle.

“Trump’s rhetoric has driven the interest of Chinese and Asian investors towards Europe, but this is a short-run fluctuation that ultimately doesn’t say too much about the underlying health of European startups. This underlying health is the true long-term magnet for investors – from China or elsewhere – and is based upon Europe’s strong fundamentals of entrepreneurial talent, scientific infrastructure and access to capital.”

Between 2015 and 2019, the UK has been the most popular destination for Chinese tech investments in Europe. From 2010, then Prime Minister David Cameron was keen to promote a “golden era” of trade and investments between the UK and China. Since he stepped down in 2016, the number of investments has continued to grow.

They include investments in gene sequencing company Oxford Nanopore by China Construction Bank International, while Chinese tech giant Tencent Holdings has invested in several UK startups, including Everledger and Sensat.

However, UK tech firms have historically been more at risk to foreign takeovers. For example, chipmaker Arm was acquired by Japanese conglomerate SoftBank in 2016, and was this month acquired by US GPU maker Nvidia. Critics saw this as a crown jewel of UK tech being lost and many are keen to prevent something similar from happening again.

“One of the structural problems in the UK is that, once at a certain size, businesses look to exit, often ceding their intellectual property to foreign competitors,” Stephen Kelly, chairman of Tech Nation, told Forbes. “This is in stark contrast to the successful US mindset of long-term growth and global market leadership. It’s vital that UK businesses are allowed to grow and mature in their own time.”

However, the UK’s long-running Huawei saga, which ultimately saw the company banned from the country’s 5G network, brought to light a growing sense of unease in government about China’s role in UK business. Buoyed by their victory in banning Huawei, MPs with concerns about China have voiced concerns about the levels of investment across the country.

In June, the UK government announced that it would increase foreign investment controls for artificial intelligence, cryptography and advanced materials. These measures have been put in place to prevent Chinese companies from taking advantage of the coronavirus crisis to buy controlling interests in struggling companies, as they did during the 2008 financial crash.

“These amended powers will display a significant signal to those seeking to take advantage of those struggling as a result of the pandemic that the UK government is prepared to act where necessary to protect our national security,” said UK business secretary Alok Sharma in a statement.

While the coronavirus pandemic has engendered cooperation between countries in the search for a vaccine, there are also fears that the race to distribute a working vaccine will lead to ‘vaccine nationalism’.

This protectionism trend appears to have crossed over into the tech world, with governments in Australia, Canada, the EU, France, Germany, India, Italy, Japan, Poland, Spain, the UK and the US having all increased their levels of scrutiny of foreign investments in the wake of the pandemic.

Trump, stoking anti-China sentiment and appearing to blame the country for the pandemic on multiple occasions, has no doubt played his role in creating a stigma around Chinese investment.

“There has been quite a lot of emotive language used around Chinese investment, and in some cases, an assumption that because an investor is Chinese there must be a malicious or political purpose to the investment,” Samantha Mobley, partner at Mobley at Baker & McKenzie, told NS Tech.

For many tech startups, foreign investment is often essential for survival. During the pandemic, struggling companies will be more eager than ever to secure investment to stay afloat. The country from which it originates is unlikely to be of major concern.