Capsules containing a blend of ginkgo biloba, ginseng and saffron extracts, called Sailuotong or SLT, are displayed for a photograph at the China Academy of Chinese Medical Sciences’ Xiyuan Hospital in Beijing, China. (Photographer: Giulia Marchi/Bloomberg)

China’s Biotech Investors Have Caught a Chill

(Bloomberg Businessweek) -- Four years ago, President Xi Jinping’s government rolled out the Made in China 2025 strategy to dominate the global economy with its homegrown technology. Chinese government-backed venture capital firms that still wanted to buy U.S. assets identified health care as a sector they could invest in without running afoul of regulators at home.

Cut to 2018, when health and biotech supplanted real estate and entertainment as the top recipients of Chinese capital in the U.S., according to a report commissioned by the U.S.-China Economic and Security Review Commission. Now, however, investors face pressure from regulators in America. The Committee on Foreign Investment in the United States, known as CFIUS, which screens foreign takeovers of domestic assets for national security risks, has become a lot more stringent under the Trump administration. At the end of last year it began vetting even the purchase of minority stakes in critical technology—including biotechnology.

Even Chinese investors without government backing have felt a chill since the arrest of Huawei Technologies Co. executive Meng Wanzhou in December on U.S. bank fraud charges. Before that, the U.S. blocked Singapore-based Broadcom Inc.’s $117 billion bid to acquire Qualcomm Inc., the San Diego-based chipmaker, over fears that Broadcom’s cost-cutting would dull the American company’s edge. Chinese-backed venture capital firms were involved in five technology deals in the U.S. last year, valued at a total of $349 million, according to the Asia Private Equity Review. That’s down from nine tech transactions worth $602.4 million in 2017.

Health-care deals involving Chinese investors in the U.S., on the other hand, shot up to 17 last year, worth $2.8 billion—well above the four valued at $702.9 million in 2017. Of the seven biggest venture capital and private equity funds investing in both the U.S. and China that raised money in 2018, according to APER, four have chosen health care as a target. Chinese biotech firms investing in U.S. companies are also acquiring clinical and genetic data on U.S. residents in the process, according to the review commission’s report, something that may trigger alarm at CFIUS. Such information could be used to blackmail Americans, it said.

If CFIUS starts holding up Chinese biotech deals, that would leave a lot of Chinese money with few places to go, especially because Europe has grown more concerned with privacy protections and thus warier about foreign tech investments. “Many startups in the U.S. that need funding are getting bypassed by Chinese money,” says Winston Ma, former North American head of China’s sovereign wealth fund, because Chinese VCs are cautious about CFIUS holding up transactions. That’s a problem for U.S. companies but perhaps a bigger one for China, whose biotech industry remains less than one-10th the size of that of the U.S.
 
—Gopalan is a finance columnist for Bloomberg Opinion.

To contact the editor responsible for this story: Jillian Goodman at jgoodman74@bloomberg.net

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