US Firms Splurge On Chinese Semi Deals, Aiding Beijing's Bid For Chip Dominance Despite Security Risks

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by Tyler Durden
Friday, Nov 12, 2021 - 01:47 PM

All those back-door China "sponsored" deals meant to buy favors with one Hunter Biden are finally starting to pay dividends.

U.S. venture capital firms have been "ramping up investments" in Chinese semiconductor companies despite the obvious security conflicts, a new report from the Wall Street Journal says. Cumulatively, U.S. firms have helped raise "billions" for Chinese chip startups. There's been no word as to whether or not Chinese VC investors are buying any of Hunter Biden's art in return...

There has been more than 58 deals in China's semiconductor industry from 2017 to 2020, the report says. Among the "active investors" is Intel, who has invested in a Chinese company called Primarius Technologies Co., which makes chip-design tools that the U.S. currently holds the lead in making. 

Intel told the WSJ its China investments "are less than 10% of the deals in a global portfolio designed to support its business and generate return".

VC firms Sequoia Capital, Lightspeed Venture Partners, Matrix Partners and Redpoint Ventures have also made "at least 67 investments" in Chinese chip companies since the beginning of 2020, the report says. Sequoia and Redpoint said their deals have been done "independent" of their U.S. offices in Silicon Valley. 

The Journal wrote that "Sequoia Capital’s China unit has made at least 40 investments in Chinese chip-sector companies since 2020". 

The massive tranche of deals has Washington alarmed, with national security adviser Jake Sullivan claiming this summer that the Biden administration is “looking at the impact of outbound U.S. investment flows that could circumvent the spirit of export controls or otherwise enhance the technological capacity of our competitors in ways that harm our national security.”

The move comes as China attempts to become self-sufficient in semiconductors. U.S. officials say that U.S. investments are helping China's push. 

Nathan Picarsic, co-founder of Horizon Advisory, said: “It’s a capital-intensive sector and capital matters to picking the winners.”

Meanwhile, U.S. politicians like Sens. Bob Casey (D., Pa.) and John Cornyn (R., Texas) are sponsoring legislation to try and screen "outbound U.S. investments" like the ones being made in China's semi sector. The U.S. Chamber of Commerce and the U.S.-China Business Council are lobbying against the legislation, with the latter group stating that “regulation of outbound capital flow is unprecedented in 250 years of American history”. 

Sen. Casey said: "For too long, corporate interests have prioritized their bottom lines without regard to the broader American economy or our national security."

China, in the interim, is working to make more advanced chips and is focusing on areas, like electronic design automation (EDA), where the U.S. currently has the lead between the two countries. 

Support from Beijing is what is driving much of the investment from the U.S., Thilo Hanemann, a partner with Rhodium Group, said: “China’s semiconductor industry is an industrial-policy-driven bubble.”

U.S.-based venture capitalists and other private investors partook in 20 deals in China's chip sector and there has been an average of 14 to 15 deals per year since 2017, the report said. 

Walden International in San Francisco made 25 investments in Chinese chip firms between 2017 and 2020. Walden’s managing director in China, Hing Wong, said last month: “...the impact from various geopolitical events has in fact accelerated the upgrade of Chinese semiconductor companies.”