Chinese investment in US tech companies hits new low as bilateral relations remain tense, report says

There were 11 deals for Chinese investments into US tech companies in the first quarter, compared to 18 in the same period last year
Chinese investment in European tech firms has caught up with that in US tech firms for the first time in at least two years, according to a report

China technology

Yujie Xue

Published: 5:30am, 22 May 2020

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Chinese investment into US tech companies reached a new low in the first quarter of this year, with the tense relationship between the two countries showing little sign of recovery, according to a report by GP Bullhound, a technology advisory and investment firm.

The UK-based company’s Asia Insights report showed that Chinese investors closed 11 deals worth US$400 million involving US tech companies in the first quarter, compared to 18 deals worth US$1.8 billion in the same period last year.

Amid an overall decline in outbound investment from China due to the coronavirus pandemic, Europe was the only region where Chinese tech investors closed more deals in the first three months of this year, with 11 such deals completed compared to seven in the previous quarter, according to the report. This put the deal volume by Chinese tech investors into Europe on par with that into the US for the first time in the report’s two-year history.

The biggest deal involving a Chinese tech investor in the quarter was a US$250 million investment by Tencent Holdings in UK online luxury shopping platform Farfetch. Of the five other deals the Chinese internet giant closed in the same quarter, four were in Europe while only one was in the US, the report showed.

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GP Bullhound’s report quarterly report for the same period last year had noted that Chinese investors were increasingly turning their eyes to Europe for investment and deals as US regulators were seen as a “major hurdle” to technology-driven transactions.

“The preference for European tech firms and decline in [Chinese tech investments in] the US does not mean Chinese investors are losing interest in the US market,” Li Juzhen, an investment manager at Beijing-based GSR United Capital said. “It is more because of the uncertainty considering current US-China relations, but it could be temporary,” Li said.

Chinese investors, known to be keen to court US-based start-ups for more advanced technologies and highly skilled talent, have been scaling back or putting on hold their plans to avoid scrutiny by the US government.

US venture capital in China tumbles as tech decoupling deepens

In the past two years, US authorities have hit major Chinese companies such as Huawei Technologies with trade restrictions and opened investigations into Chinese investments such as TikTok-owner ByteDance’s US$1 billion acquisition of US social media app Musical.ly.

New regulations introduced this year, extending the power of the US government to block foreign deals for companies involved in critical infrastructure, technology and sensitive personal data, are also widely believed to be intended to curb China’s access to advanced technologies and other valuable assets.

The deepening US-China rift appears to be affecting investment flows both ways, also ripping apart early-stage deals for US investments into Chinese tech companies, according to a report published by Rhodium Group and the National Committee on US China Relations in January.

The report estimated that American venture capital investment in Chinese start-ups would fall to a six-year low of less than US$4 billion in 2019.

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