Rejecting funding with Chinese connections will backfire on US high-technology sector

By Hu Weijia Source:Global Times Published: 2018/7/1 22:12:41

Chinese e-commerce giant Alibaba is reportedly scaling back its presence in Silicon Valley in the US, at a time when US President Donald Trump is tightening control on inbound investment from China.

In the past few years, Alibaba has invested massively in advanced projects, making itself an important financier of high-tech innovation. It's highly possible that Washington's investment controls could deal a serious blow to the US' start-up ecosystem.

Taking a close look at US high-technology industries, foreign capital has become a key engine for the US innovation-driven economy. In recent years, start-ups in Silicon Valley have increasingly attracted foreign investment, which has made it easier for new companies to raise money.

Now, China has become an important source of investment for the US technology sector. US industries could be hurt if investment reviews dampen the appetite of Chinese investors to buy them out.

Chinese investment in the US nosedived 92 percent in the first five months to $1.8 billion, according to a report released by US-based consulting firm Rhodium Group. The dramatic decline is likely to continue as trade friction between China and the US escalates.

According to Bloomberg, Alibaba's corporate venture arm has announced only one fresh investment in the US this year, which was "a tiny deal" compared with the hundreds of millions of dollars Alibaba previously lavished on US companies such as Magic Leap.

If the US does not welcome Chinese technology investment, it is easy for Chinese companies to shift their focus to other countries. In the January-May period, China recorded $47.9 billion in outbound direct investment, up 38.5 percent from a year earlier, official data showed. At a time when the US government is drafting curbs on Chinese investment, some other countries are sparing no effort to attract the attention of Chinese companies.

Currently, a majority of China's outbound investment comes from privately owned companies such as Alibaba and telecommunications giant Huawei, whose primary strategy is to maximize profit margins. Chinese companies are expanding into overseas markets seeking commercial interests rather than being driven by economic policy goals or patriotic doctrines, so investment from those companies has become a significant contributor to research and innovation in the local economy.

Destination countries are always the first beneficiaries of high-technology investment from China.

In a business sense, money has no nationality. If the Trump administration wants to force US companies to reject money with Chinese connections, the US high-tech sector will be the one that suffers big losses as it loses a super-generous investor.

The author is a reporter with the Global Times.


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