Chinese investments in U.S. technology startups have come to a halt after President Trump’s administration announced policies aimed at curbing China’s access to American innovation. Both investors and startup founders have abandoned deals amid scrutiny from Washington, Reuters reported.
According to a New York economic research firm, Rhodium Group, Chinese venture funding in U.S. startups rose to a record USD 3 Billion last year. Since then, Chinese venture funding has fallen drastically, as noted in a Reuters interview with more than 35 industry players.
U.S. President Donald Trump recently signed new legislation expanding the government’s ability to block foreign investment in U.S companies. He has been particularly keen on stopping China from obtaining U.S technologies. Although the new rules are still being finalized, tech industry veterans have said the fallout has been swift.
Given the situation, Chinese investors have walked away from transactions and stopped taking meetings with U.S. startups. Some entrepreneurs have begun eschewing Chinese money, fearful of lengthy government reviews that could sap their resources and momentum in an area where speed to market is critical, as stated by Reuters.
A Silicon Valley venture capitalist told Reuters, that approximately ten deals fell apart because they would need approval from the interagency group known as the Committee on Foreign Investment (CFIS) in the United States. CFIS is the government group tasked with reviewing foreign investment for potential national security and competitive risks. According to Reuters, the new legislation would enable the CFIS to probe transactions previously excluded from its purview, including attempts by foreigners to purchase minority stakes in U.S. startups.
China is stuck in the crossfire. It is heavily invested in technology deemed critical to its military prowess and global competitiveness and Chinese investors have bought stakes in ride-hailing firms such as Lyft and Uber Technologies Inc. [UBER.UL], as well as data centre networking firm Barfoot Networks, autonomous driving startup Zoox, and speech recognition startup AISense.