Chinese state-backed funds have not been deterred by Washington’s scrutiny from investing in US tech companies © Financial Times

Hi all, James in Hong Kong here. As the Trump presidency comes to a close, concern in Washington over China’s tech ambitions remains unabated. An FT scoop finds that China’s state-backed funds are still making investments in sensitive US technologies, prompting alarm on Capitol Hill (The Big Story).

Ultimately, this week might be remembered for a “world-first”: Singapore has become the first country to approve lab-grown meat. “In vitro” chicken nuggets grown in vats may not sound appetising, but the photo looks pretty standard (Mercedes’ top 10). Sticking with food, check out Wendy’s “cloud kitchens” in India (Art of the deal). The sorry tale of Aaron Li’s shattered dreams of ecommerce riches in India is this week’s Spotlight. Till next week, take good care.

The Big Story — Exclusive

Chinese state-backed funds are still scouring the US for investments in critical technologies despite stiffer restrictions on such deals, prompting bipartisan concern in Washington over national security, according to this scoop by the FT.

Pixelworks, Black Sesame Technologies and LightIC Technologies, three companies in the sensitive US semiconductor sector, have attracted attention in recent months from a group of China’s more than 1,600 so-called government-guided funds. In total, these vehicles are estimated to control more than Rmb4tn ($610bn) in capital, according to Chinese consultancy Zero2IPO.

Key implications: The US has stepped up scrutiny of Chinese investments over fears that critical technologies and intellectual property could be stolen, with even minority investments deemed a security risk under rules passed in 2018.

China’s government-guided funds are instructed by the National Development and Reform Commission, the country’s top economic planner, to invest in strategic emerging industries and advanced manufacturing sectors such as semiconductors, an area in which China is determined to catch up with the US.

Upshot: Chinese venture investments into the US have plunged since Washington beefed up the Committee on Foreign Investment, an inter-agency committee that can block deals on national security grounds, two years ago. But some deals in critical technology areas are still getting through.

Mercedes’ top 10

  1. Guilt-free meat anyone? Singapore has become the first country to approve lab-grown “chicken” nuggets.

  2. Chinese smartphone maker Xiaomi is preparing for a bold dash for growth next year that could see it challenge Huawei for the world’s top spot.

  3. Huawei is hitting brick walls in Europe, but Indonesia and Thailand are co-operating on 5G telecoms.

  4. The incoming chief executive of Japan’s NEC is focusing on global 5G demand as pressure on Huawei mounts.

  5. Chinese venture capital investors are shifting their attention to Indonesia after India closed its doors, creating a surge in investment this year.

  6. Amnesty International has accused Facebook and Google of complicity in “industrial-scale repression” in Vietnam.

  7. Two high-profile chip projects led by China’s Tsinghua Unigroup have hit significant delays, according to this scoop by Nikkei Asia.

  8. Asian countries are building data fortresses to protect this new type of national asset. India is in the frame.

  9. Japan’s NTT DoCoMo is set to slash mobile phone fees as prime minister Yoshihide Suga ramps up efforts to digitise the economy.

  10. India is benefiting as tech manufacturers diversify supply chains from China, with big new factories being set up.

‘Chicken’ made by US start-up Eat Just has met Singapore’s safety standards for use in nuggets, paving the way for a commercial launch in the Asian city-state © via Reuters

When sages speak

  • Strategy papers offering advice to a new US administration are proliferating. This one by Akinori Kahata for CSIS, a Washington-based think-tank, reframes the objectives of decoupling with China. An interesting read.

  • More policy advice here from Caleb Foote and Robert Atkinson at ITIF, a Washington-based think-tank, on how US companies should respond to Chinese competitiveness in the international digital economy.

  • Kartik Bommakanti provides a fascinating snapshot of what China’s ambitious space programme is driving at. This report for India’s Observer Research Foundation mentions China’s launch of a Reusable Launch Vehicle.

Best of comment

This week we are replying to outstanding audience questions from a #techAsia webinar on what a Joe Biden presidency could mean for the US-China tech rivalry.

Q: Will Biden see a rising China as a threat to the USA and what are the implications for the Asia-ex China tech sector? A: Joe Biden has called Xi Jinping a thug and accused Donald Trump of being too close to the Chinese president. Maybe he will be more nuanced once in office, but clearly he sees some threat. As a result, the Asia technology market, beyond China, is likely to continue to see increased investment from US companies, especially Facebook, Google and Amazon. American investors poured a lot of money into China in recent years and some of that funding and attention is now being diverted to places including India and Indonesia. On top of that, you can expect countries including Vietnam, Taiwan and India to benefit from tech supply chain diversification away from China. 

Q: What do you think about the likelihood of the Chinese government punishing Japanese or South Korean companies that abide by the US export restrictions against China? A: I believe there is a chance that the Chinese government will punish Japanese and/or South Korean companies if they decide not to sell products and components to Chinese tech companies in compliance with US policy. However, as we have reported in the case of Sony acquiring a licence from Washington to sell camera imaging sensors to Huawei, both Japanese and Korean companies definitely would like to expand business opportunities with both the US and China.

Q: Do you think the Biden administration will allow companies like CATL, the Chinese battery maker, to expand their business into the US? A: Yes. I think the really sensitive Chinese companies are mainly those selling technologies that could harvest US consumer data. Unless electric vehicle batteries are shown to possess some data gathering capacity that I am not aware of, I think the chances of them being banned from the US are fairly slim. In addition, my online searches suggest that CATL has already set up a sales office in Detroit.

Answers by Mercedes Ruehl, Kenji Kawase and James Kynge.

Spotlight

Aaron Li once saw more opportunity in India than in his crowded home market of China, describing it as a “blue sea” for ecommerce. Now five months after his business, Club Factory, was banned in India, Mr Li has resigned himself to being locked out of the country forever.

There is little clarity about when Club Factory — which sold cheap fashion and homewares to hundreds of millions of Indians through their smartphones — could be allowed to trade again after New Delhi blacklisted scores of Chinese apps this year. That is despite Club Factory raising $100m from investors in 2019 to expand in the country of 1.3bn people.

Li’s experience exemplifies the limbo in which many Chinese tech companies and investors find themselves in India. More than 200 Chinese apps have now been blocked from the Indian market. Meanwhile, Mr Li and his team at Club Factory have pivoted to building a new app for Europe and the US. Even if India relaxes the ban, he said he wanted an apology before he would re-enter the market.

Art of the deal

In stark contrast to the Chinese experience, Wendy’s, the US fast-food chain, is going big in India. The American company has struck a deal with Indian start-up Rebel Foods — backed by Sequoia and Goldman Sachs — to open 250 “cloud kitchens”. The facilities are without seating or cashiers, instead serving customers through delivery only. (Bloomberg)

Cloud kitchens are gaining in global popularity as the food industry adapts to the coronavirus pandemic. Wendy’s, with nine brick-and-mortar outlets in India, said it believes its cloud kitchen alliance is the largest yet in the industry. Its push is also a testament to how crucial the Indian market is to foreign companies.

Rebel Foods and Wendy’s will have plenty of competition. Both of India’s two biggest food delivery companies, Zomato and Swiggy, also operate cloud kitchens. Other groups, sensing opportunity, are pushing into the market. Whether this frenzy makes as much investment sense in a post-Covid world remains to be seen.

Smart data

Top 10 countries for unicorns

The world's unicorn population has reached 500, doubling in just two years as digitisation efforts around the world ramp up. The US leads with 242 unicorns, or start-ups valued at over $1bn, followed by China with 119. The UK and India both have 24. South Korea hosts the sixth-largest unicorn population, with 11. Indonesia is number 10 on the list with five, followed by Japan at number 11 with four.

Eighty-nine companies, many of which operate in the ecommerce and healthcare sectors, gained unicorn status despite concerns that Covid-19 would negatively impact fundraising.

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