A study of US venture capital investments found an increase in funds flowing to Chinese chip companies, as Chinese government support reduces the risk profile of such investments.
Data compiled by Rhodium Group for The Wall Street Journal showed a doubling in the number of US investments in China’s semiconductor industry from 2017 through 2020 inclusive versus the previous four-year period. The research focused on US-domiciled entities making equity investments in China, and did not include the dollar amounts invested.
Strategic investors like Intel Capital joined financial firms on the list of companies taking stakes in China’s chip industry. Fifty-eight deals were reported for the four-year period 2017 through 2020.
US Senators Bob Casey (D., Pa.) and John Cornyn (R., Texas) have proposed legislation that would require government oversight of outbound US investments, a move opposed by the US Chamber of Commerce and the US-China Business Council.
As US policies have made it harder for some Chinese companies to purchase American chips, the Beijing government has funded domestic startups to try to fill the gap. That government support makes the startups attractive investments, analysts told The Wall Street Journal.
More than 22,800 new semiconductor companies were established in China in 2020, up 195 per cent from 2019, according to the US-based Semiconductor Industry Association.
Even before the US government prevented Huawei and ZTE from buying US chips, the Chinese government had made self-sufficiency in the semiconductor market a national priority. The 2015 “Made in China” initiative challenged domestic manufacturers to supply 70 per cent of the nation’s chips by 2025.