Tech Crackdown in China: Finding New Investment Opportunities


The Chinese government is dramatically increasing its grip over Chinese technology companies: in 2021, there will be a sea change: capital flows between the United States and China will reverse in certain circumstances, and the incentives that have propelled the Chinese economy for the past two decades will have shifted.


What is Hard Tech? “Hard tech” refers to company's working on hard technology problems that have more world-changing potential than “easy money” startups that chase the current fads. "Hard tech" startups are much harder start because at their outset, you don’t know whether the core tech needed will work at all.

China ramps up tech commitment in 5-year plan, eyes 7% boost in R&D spend -- Fourth Session of the 13th National People’s Session (March 2021) (https://www.reuters.com/article/us-china-parliament-technology/china-ramps-up-tech-commitment-in-5-year-plan-eyes-7-boost-in-rd-spend-idUSKBN2AX055)


China will increase its annual research and development spending by more than 7% every year over the next five years, the government wrote in its work report from the Fourth Session of the 13th National People’s Congress.

  • The government will increase expenditure on basic research by 10.6% in 2021, the report added.

  • In its five-year plan, China highlighted seven key areas related to technology it aims to boost: next-generation artificial intelligence, quantum information, brain science, semiconductors, genetic research and biotechnology, clinical medicine and health, and deep space, deep sea and polar exploration.

  • The government also said it would support foreign-funded companies to set up R&D centers in China and called for China to establish international science and technology-related organizations within the country.

  • China aims to refocus its economy on critical sectors.

  • China's national strategy, according to Li Chen, head economist at Soochow Securities, has "abandoned the American road" in favor of the "German road." For geopolitical considerations, as tech expert Dan Wang recently wrote in Foreign Affairs, China may be attempting to “redirect the country's resources toward other strategic technologies.” The government has decided, in this top-down vision, that it wants its economy to be heavy on manufacturing and hard tech — semiconductors, batteries, the "industrial internet," and biotechnologies — and light on consumer internet.

  • The move is a subliminal criticism of the US economy, which has been fueled entirely by Silicon Valley's digital fumes. “Big Tech continues to find new and profitable ways to sell ads and cloud space,” wrote Derek Thompson in The Atlantic last year, “but it has failed, often spectacularly, to remake the world of flesh and steel.” China is taking steps to ensure that its economy does not repeat the same error.

China is keeping down internet upstart (Ant Group, DiDi), but is promoting hard tech. Moreover, Beijing is advocating for localization of a broad range of hard-tech sectors. This is not an instant decision. Back in March this year, during the 13th National People’s Session, the government report has mentioned its plan to increase R&D spending in the next couple of years. The covered technology sectors of Bridge Point Capital’s interest include brain science, genetic research, biotechnology, clinical medicine and healthcare.