Sequoia Capital walls off China entity amid rising tensions; US bans two more PRC firms under forced labor law & White House admits knowing about Chinese spy base in Cuba -- China Boss News 6.12.23
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Sequoia Capital walls off China entity amid rising geopolitical tensions
Venture capital titan Sequoia Capital "is splitting its China business into a separate entity amid rising tensions between Washington and Beijing," Financial Times reported last week.
“The renowned Silicon Valley group, which made bets on fast-growing tech companies such as TikTok parent ByteDance and Alibaba, said on Tuesday it would run its Chinese business as a ‘completely independent’ entity from its US operation,” news staff said.
FT:
Roelof Botha, managing partner of Sequoia Capital, said in an interview that a decision to break up was taken in the past few months. “It really was a very complicated decision. Over the years, we have reassessed the cost-benefit trade-off of this arrangement and whether it was the right structure for the firm. We realised it was time for this.”
Neil Shen, the billionaire founder of Sequoia China, told the Financial Times: “There’s much less in common now” between the different Sequoia entities. He said conversations about splitting the businesses “have been evolving over the last two to three years”.
The “much less in common” that Shen mentioned is probably a reference to the ever-widening gulf between the way venture capital works in the West and the way it must operate in Xi Jinping’s China.
In their 2009 article, "Venture Capital in China: A Culture Shock for Western Investors," Kuntara Pukthuanthong and Thomas Walker discussed the vast cultural differences that existed even before Xi's rise to power.
Pukthuanthong & Walker, Emerald Insight:
The Chinese culture in particular places a large emphasis on the maintenance of so-called“guanxi” networks, under which harmony with and within organizations is frequently favored over information disclosure and shareholder rights (Bruton et al.,2004). While Western business culture emphasizes profit maximization, share holder rights protection, and transparency, Chinese business culture focuses on networking, harmony, and seniority. In addition, the Chinese culture typically has a high tolerance for information asymmetry between the firm’s insiders and external investors as well as outside board members (Bruton et al., 1999).
But with Xi’s campaign to re-centralize state power, those differences are larger still.
Last month, China also expanded its counter-espionage law which is, now, essentially, a "catch-all" for every type of national security risk a paranoid or ambitious local cadre can fathom.
Then, last week, China’s supreme leader "called on his top national security officials to think about ‘worst case’ scenarios and prepare for ‘stormy seas’” according to the South China Morning Post.
Sequoia China got a taste of what a security freeze-out might be like when Shen was passed-up for the Chinese People’s Political Consultative Conference.
FT:
The geopolitical tensions and close association with the US have put Shen in a tough position domestically. In a speech to China’s top political consultative body last year, Shen said that Beijing had to prioritise industries such as AI, robotics and green energy, which many interpreted as trying to align Sequoia China with Beijing’s priorities.
But this year, he was not appointed to a second term in the Chinese People’s Political Consultative Conference, an advisory body full of political heavyweights.
Back in the US, Sequoia’s aggressive China funding also carries new risks.
In recent months, the Biden Administration has been using export controls on China to protect sensitive American technology - an area of high exposure for Sequoia, according to Coalition for a Prosperous America - a bipartisan group of US farmers, ranchers, manufacturers, and labor organizations.
Kenneth Rapoza, Coalition for a Prosperous America:
Silicon Valley venture capital firms, led by Sequoia Capital in Asia, have invested in 67 semiconductor operations in China in the last 18 months, based on findings reported in the WSJ article.
“While the overall funding was not disclosed, (American investors) raised billions of dollars for China chip startups,” the report authors wrote, adding that those investments were complicating “Washington’s efforts to preserve America’s lead in the critical technology.”
For the rest of FT’s report, US venture capital giant Sequoia to spin off China business, click here. For Pukthuanthong & Walker 2009 analysis in Emerald Insight Venture Capital in China: A Culture Shock for Western Investors, click here. For Rapoza’s post on Coalition for a Prosperous America’s website, Sequoia Capital, Others, Investing in China Semiconductors. Who's Investing in Ours? (Nov. 2021), click here.
Law and International Xi
US bans Xinjiang chemical company and Ninestar over forced labor concerns
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