New restrictions on US investments in advanced technology sectors in China, announced by the Biden administration, are expected to worsen the decline in deals between the world’s top two economies and have a significant impact on Chinese startups.
The restrictions target US venture capital and private equity firms, as well as joint ventures, investing in areas such as Chinese artificial intelligence, quantum computing, and semiconductors.
The move is seen as a “major blow” to Chinese startups and the venture capital industry.
Silicon Valley venture capital firm DCM, a prominent US investor in Chinese startups, stated that the order will affect the manner and structure of its investments, particularly in the field of artificial intelligence.
Analysts and investors have expressed concerns about the potential damage to cross-border deals and the innovation capabilities of Chinese startups.
The Biden administration emphasized that the goal of these restrictions is to prevent US capital from aiding China’s military rather than hurting China’s economy.
However, investors fear that the loss of access to technical know-how and relationships could hinder Chinese startups’ ability to innovate and compete globally.
Furthermore, the restrictions might encourage some Chinese businesses to go public in mainland China instead of on Wall Street.
The US-China tensions have already led to a significant decline in US venture capital investment in China, with a drop of around 80% over the past year.
The restrictions on investments in advanced technology sectors are expected to exacerbate this decline and impact the overall US-China private market investment landscape..