US venture capitalists gain greater access to China

investmentnews.com:

US investors who spent years fighting strict limits on their ability to invest in China scored a victory Wednesday when President Joe Biden released an order imposing only light curbs on the flow of money to the world’s second-largest economy.

But many of those same venture firms fret that future restrictions — whether from the Federal government or individual states — will be far less investor friendly.

The new rule would bar US investors from taking stakes in some Chinese semiconductor, quantum computing and artificial intelligence firms. It’s narrower than previous versions, and will not require the dismantling of earlier investments. Yet while the wording sparked relief in some corners of the financial world, many investors now believe the executive order is the opening salvo for the administration as it looks to ensure that American VCs don’t give China an edge in developing technology that has potential military applications.

“US investors should interpret the EO as the first chapter of a book,” said H.K. Park, managing director for Crumpton Global, a Washington-based consulting firm. “Other initiatives at the federal and state level with broader scopes may come to fruition.”

For example, he said, the special committee on the Chinese Communist Party is advocating for the audit of past investments in Chinese firms, the Senate has approved legislation that would require the disclosure of new investments, and individual states have taken their own actions. The state of Indiana recently enacted legislation requiring its pension fund to divest from investments in China.

“Don’t expect a narrowly targeted national security program to stay narrow — and plan accordingly,” said James Maloney, managing partner at Tiger Hill