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

Intel’s enterprise capital arm has emerged as one of the crucial lively international traders in Chinese language synthetic 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 expertise start-ups, based on an FT evaluation of its portfolio. Because the enterprise fund was launched within the early Nineteen Nineties, it has invested in additional than 120 Chinese language teams, based on knowledge supplier Crunchbase.

The fund, which invests off the chipmaker’s steadiness sheet, has continued to again fledgling Chinese language firms prior to now 12 months, at the same time as a lot of its American friends exited the market beneath strain from US authorities.

In February Intel Capital invested in a $20mn fundraising spherical by Shenzhen-based AI-Hyperlink, a 5G and cloud infrastructure platform, and final 12 months led a $91mn spherical for Shanghai-headquartered North Ocean Photonics, a maker of micro-optics {hardware}.

Rising geopolitical tensions between Washington and Beijing have led to larger scrutiny of personal funding flows between the 2 financial powers as they jostle for technological and army supremacy.

In June, the Biden administration unveiled guidelines to curb US financing for Chinese language expertise that would have army functions, corresponding to AI, quantum computing and semiconductors. The rules are anticipated to be finalised this 12 months.

Intel Capital’s “investments have been poster kids that helped construct consensus for the outbound restrictions”, based on one particular person conversant in the Biden administration’s considering on the brand new guidelines.

Its present investments in China embrace round 16 AI start-ups and 15 within the semiconductor business, in addition to firms growing cloud companies, electrical automobiles, telecoms, digital actuality programs and batteries.

Intel Capital could also be compelled to divest from some firms as soon as the US rules take impact, although the US Treasury is inspecting whether or not to incorporate some exemptions for some enterprise capital transactions.

Nonetheless, the US group has slowed down its dealmaking in China over the previous 18 months, based on knowledge supplier ITjuzi, finishing simply three offers because the begin of 2023. Funding controls and a slowdown within the Chinese language financial system, in addition to lasting repercussions from Beijing’s crackdown on tech firms, have hit start-up valuations and viability.

A report by a US Home China committee on the Chinese language Communist celebration in February mentioned that American enterprise capital corporations had invested billions of {dollars} into firms that have been fuelling China’s “army, surveillance state and Uyghur genocide”. This consists of funnelling $1.9bn into AI firms and an additional $1.2bn into semiconductors.

The report singled out 5 US enterprise corporations — Sequoia, GGV, GSR Ventures, Qualcomm Ventures and Walden Worldwide — however didn’t point out Intel Capital, regardless of the fund turning into one of many largest US traders in China after the departure of a few of its rivals.

Intel Capital is “far more lively” than Qualcomm’s enterprise arm in China, mentioned the pinnacle of a big US fund with an extended historical past of doing enterprise in China. “Intel is lively in all the pieces.”

John Moolenaar, Republican head of the Home China committee, mentioned the case highlighted the necessity for tighter regulation.

“The Chinese language Communist celebration remembers the previous communist slogan that ‘the capitalists will promote us the rope with which we are going to grasp them’,” mentioned Moolenaar. “We’d like robust outbound capital restrictions to stop American corporations from investing in firms intently tied to the CCP’s armed forces.”

Intel Capital declined to remark.

Sequoia Capital and GGV Capital, two of the most important US enterprise traders in China, spun out their Chinese language companies final 12 months amid the mounting political strain. Qualcomm, Walden and GSR additionally proceed to spend money on Chinese language start-ups.

In March Intel obtained about $20bn in grants and loans from the US to fund an enlargement of its semiconductor factories, the most important award from the federal government’s 2022 Chips and Science Act designed to boost the home chip business. The bundle will assist greater than $100bn in US investments from Intel for superior chipmaking services, together with constructing mega-plants in Ohio and Arizona.

Nasdaq-listed Intel has a big China enterprise, the place it employs round 12,000 folks and accounted for 27 per cent of world income in 2023.

Chinese language multinational Lenovo is likely one of the three largest clients of its chips, alongside Dell and HP, producing 11 per cent of world income. Final month, Intel’s China arm acquired a 3 per cent stake in Shenzhen telecoms tools maker Luxshare.

Intel Capital’s China enterprise is run by Tianlin Wang, a life-long Intel worker and head of the unit since 2017. It has six different funding administrators within the nation. Globally, Intel Capital has invested greater than $20bn because the early Nineteen Nineties and is led by Anthony Lin in San Francisco.

Intel Capital has participated in Chinese language start-up offers price a complete $1.4bn since 2015, based on knowledge from PitchBook. That determine pertains to the entire worth of the offers moderately than Intel Capital’s particular person contribution, which the agency doesn’t make public.

As early as 2014, Intel Capital introduced it had invested $670mn in additional than 110 Chinese language expertise firms, and in 2015 alone it gave $67mn to eight Chinese language tech firms. Since then, Intel Capital has not publicly revealed the dimensions of its investments in China.

A report in February 2023 by the US Middle for Safety and Rising Expertise, a DC think-tank, into the nationwide safety dangers related to US funding in Chinese language AI firms, discovered that Intel Capital participated in 11 offers for such firms between 2015 and 2021. An individual near Intel mentioned there have been solely 4 AI offers throughout this time.

In some circumstances, the US fund obtained a board seat, corresponding to at Horizon Robotics, a chipmaker, and Eeasy Tech, which designs AI chips for facial recognition and that was additionally backed by the Zhuhai provincial authorities.

“Intel Capital’s investments in Chinese language AI corporations have led to the formation of strategic collaborations that would profit the Chinese language firms in a approach that enhances Chinese language authorities methods,” that report mentioned.

In a single case, Intel Capital helped fund the creation of a Chinese language firm that was later sanctioned by the US. The fund was one of many earliest traders in AI voice recognition group iFlytek, buying a 3 per cent stake in 2002 earlier than promoting the shareholding two years later. The corporate was considered one of six Chinese language firms banned by the US in 2019 for his or her roles in alleged human rights abuses in Xinjiang.

“The concern of lacking out within the AI period has created a way of urgency for Intel Capital,” mentioned the pinnacle of a rival Chinese language enterprise agency that has co-invested alongside them. “Intel is beneath such fierce competitors in AI within the US, they will’t afford to be left behind, in order that they need to look all over the world for the place to deploy cash into AI and China is likely one of the only a few choices.”