Intel venture arm’s China tech stakes raises alarm in Washington

Intel’s venture capital arm has emerged as one of the most active foreign investors in Chinese artificial intelligence and semiconductor start-ups, at a time the $147bn chipmaker receives billions of dollars from Washington to fund a technological arms race with Beijing.

Intel Capital owns stakes in 43 China-based technology start-ups, according to an FT analysis of its portfolio. Since the venture fund was launched in the early 1990s, it has invested in more than 120 Chinese groups, according to data provider Crunchbase.

The fund, which invests off the chipmaker’s balance sheet, has continued to back fledgling Chinese companies in the past year, even as many of its American peers exited the market under pressure from US authorities.

In February Intel Capital invested in a $20mn fundraising round by Shenzhen-based AI-Link, a 5G and cloud infrastructure platform, and last year led a $91mn round for Shanghai-headquartered North Ocean Photonics, a maker of micro-optics hardware.

Rising geopolitical tensions between Washington and Beijing have led to greater scrutiny of private investment flows between the two economic powers as they jostle for technological and military supremacy.

In June, the Biden administration unveiled rules to curb US financing for Chinese technology that could have military purposes, such as AI, quantum computing and semiconductors. The regulations are expected to be finalised this year.

Intel Capital’s “investments were poster children that helped build consensus for the outbound restrictions”, according to one person familiar with the Biden administration’s thinking on the new rules.

Its current investments in China include around 16 AI start-ups and 15 in the semiconductor industry, as well as companies developing cloud services, electric vehicles, telecoms, virtual reality systems and batteries.

Intel Capital may be forced to divest from some companies once the US regulations take effect, though the US Treasury is examining whether to include some exemptions for some venture capital transactions.

However, the US group has slowed down its dealmaking in China over the past 18 months, according to data provider ITjuzi, completing just three deals since the start of 2023. Investment controls and a slowdown in the Chinese economy, as well as lasting repercussions from Beijing’s crackdown on tech companies, have hit start-up valuations and viability.

A report by a US House China committee in February said that American venture capital firms had invested billions of dollars into companies that were fuelling China’s “military, surveillance state and Uyghur genocide”. This includes funnelling $1.9bn into AI companies and a further $1.2bn into semiconductors.

The report singled out five US venture firms — Sequoia, GGV, GSR Ventures, Qualcomm Ventures and Walden International — but did not mention Intel Capital, despite the fund becoming one of the largest US investors in China after the departure of some of its rivals.

Intel Capital is “way more active” than Qualcomm’s venture arm in China, said the head of a large US fund with a long history of doing business in China. “Intel is active in everything.”

John Moolenaar, Republican head of the House China committee, said the case highlighted the need for tighter regulation.

“The Chinese Communist party remembers the old communist slogan that ‘the capitalists will sell us the rope with which we will hang them’,” said Moolenaar. “We need strong outbound capital restrictions to prevent American firms from investing in companies closely tied to the CCP’s armed forces.”

Intel Capital declined to comment.

Sequoia Capital and GGV Capital, two of the largest US venture investors in China, spun out their Chinese businesses last year amid the mounting political pressure. Qualcomm, Walden and GSR also continue to invest in Chinese start-ups.

In March Intel received about $20bn in grants and loans from the US to fund an expansion of its semiconductor factories, the largest award from the government’s 2022 Chips and Science Act designed to enhance the domestic chip industry. The package will support more than $100bn in US investments from Intel for advanced chipmaking facilities, including building mega-plants in Ohio and Arizona.

Nasdaq-listed Intel has a large China business, where it employs around 12,000 people and accounted for 27 per cent of global revenue in 2023.

Chinese multinational Lenovo is one of the three largest customers of its chips, alongside Dell and HP, generating 11 per cent of global revenue. Last month, Intel’s China arm acquired a 3 per cent stake in Shenzhen telecoms equipment maker Luxshare.

Intel Capital’s China business is run by Tianlin Wang, a life-long Intel employee and head of the unit since 2017. It has six other investment directors in the country. Globally, Intel Capital has invested more than $20bn since the early 1990s and is led by Anthony Lin in San Francisco.

Intel Capital has participated in Chinese start-up deals worth a total $1.4bn since 2015, according to data from PitchBook. That figure relates to the total value of the deals rather than Intel Capital’s individual contribution, which the firm does not make public.

As early as 2014, Intel Capital announced it had invested $670mn in more than 110 Chinese technology companies, and in 2015 alone it gave $67mn to eight Chinese tech companies. Since then, Intel Capital has not publicly revealed the scale of its investments in China.

A report in February 2023 by the US Center for Security and Emerging Technology, a DC think-tank, into the national security risks associated with US investment in Chinese AI companies, found that Intel Capital participated in 11 deals for such companies between 2015 and 2021. A person close to Intel said there were only four AI deals during this time.

In some cases, the US fund obtained a board seat, such as at Horizon Robotics, a chipmaker, and Eeasy Tech, which designs AI chips for facial recognition and that was also backed by the Zhuhai provincial government.

“Intel Capital’s investments in Chinese AI firms have led to the formation of strategic collaborations that could benefit the Chinese companies in a way that complements Chinese government strategies,” that report said.

In one case, Intel Capital helped fund the creation of a Chinese company that was later sanctioned by the US. The fund was one of the earliest investors in AI voice recognition group iFlytek, acquiring a 3 per cent stake in 2002 before selling the shareholding two years later. The company was one of six Chinese companies banned by the US in 2019 for their roles in alleged human rights abuses in Xinjiang.

“The fear of missing out in the AI era has created a sense of urgency for Intel Capital,” said the head of a rival Chinese venture firm that has co-invested alongside them. “Intel is under such fierce competition in AI in the US, they can’t afford to be left behind, so they have to look around the world for where to deploy money into AI and China is one of the very few options.”

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