In Silicon Valley, Chinese money is generally viewed to fall into two categories: the reliable, actual funds intended to improve established brands, expand customer bases, acquire tech and explore new investment opportunities. The other category is for money considered to be fleeing in mad rush out of an unstable future local economy.
Eric Edmondson, an investment banker in California for the past 30 years, said more startups are hoping to be gobbled up by the big three Chinese companies known as BAT: Baidu, Alibaba and Tencent.
These billion-dollar firms have been buying up businesses and assets worldwide and have invested largely into ventures in Silicon Valley, showing a huge shift in the balance of power among global business giants.
Gone are the days when being acquired involved a big American company such as Microsoft or Google. Today, BAT and other Chinese companies are into buying sprees partly in support of the Chinese government’s “One Belt, One Road” policy. China’s initiative to develop a modern-day thriving economy along the ancient Silk Road.
In Silicon Valley, however, the less impressed call the rivers of flowing cash as nothing more than “dumb money,” according to Edmondson, implying that many Chinese investors are getting way too generous to the point of injecting money into unimpressive startups that most U.S. venture capitalists would say no to.
Such blind generosity brings back the early 2000’s tech bubble into the minds of many. It was the era when any “.com” company could generate huge financial support from investors. For those who remembered when the bubble popped, the Chinese businesses’ shopping spree looked all too familiar.
Last year, around $700 billion was funneled out of China and into hundreds of companies around the world, according to the Institute of International Finance. The trend has continued this year, although at a slower pace.
Some see the money flooding into Silicon Valley as a sign that the Chinese elite are not as confident where their country’s economy is headed, anticipating the devaluation of the yuan.
With the priority being to simply move the money out of China, there are tendencies to make faulty investment decisions.
Economic analyst and Pimco co-founder Bill Gross has been observing China’s private-sector debt, which according to estimates, has exceeded 150% of its GDP.
Gross believes that China’s profit will be mostly used to pay its enormous debt and interests with very little left for actual income. He also pointed out that Chinese businessmen may be realizing the possibility of their money running out in the near future.
Support our Journalism with a Contribution
Many people might not know this, but despite our large and loyal following which we are immensely grateful for, NextShark is still a small bootstrapped startup that runs on no outside funding or loans.
Everything you see today is built on the backs of warriors who have sacrificed opportunities to help give Asians all over the world a bigger voice.
However, we still face many trials and tribulations in our industry, from figuring out the most sustainable business model for independent media companies to facing the current COVID-19 pandemic decimating advertising revenues across the board.
We hope you consider making a contribution so we can continue to provide you with quality content that informs, educates and inspires the Asian community.
Even a $1 contribution goes a long way. Thank you for everyone’s support. We love you all and can’t appreciate you guys enough.