Due to geopolitical tensions, US multinational firms are more cautious about investing in China. S&P Global Market Intelligence data revealed that in 2022, US capital investments in China declined 76% YoY to $7.02 billion from $28.92 billion, and deals dropped 40%. Additionally, US dollar investments in Chinese startups decreased by almost 75% YoY - only 19% of the capital was in USD compared to 39% in 2021.
The White House has been working on a measure to limit U.S. venture capital firms from pouring money into Chinese companies in high-tech areas that could threaten national security, like artificial intelligence and quantum computing. Congress is preparing to propose its plans to restrict US firms from investing in sensitive Chinese tech companies. There’s a bipartisan appetite for policies that look tough on China, which means that legislation restricting outbound investment might have a chance of passing, despite a divided Congress. The US government has been increasingly scrutinizing foreign investments, American investments in other countries, and reliance on China, bringing attention to its domestic capacity of high-tech manufacturing of critical goods like semiconductors.
Since American researchers invented the integrated circuit in the late 1950s, the U.S. manufacturing share has dwindled. Most American chip companies focus on designing cutting-edge products while outsourcing the costly manufacturing to overseas foundries. Semiconductor suppliers and their customers pulled together last year to lobby the Congress to help shore up U.S. chip manufacturing and reduce vulnerabilities in the crucial supply chain. The push led lawmakers to approve the CHIPS Act, including $52 billion in subsidies to companies and research institutions as well as $24 billion or more in tax credits — one of the biggest infusions into a single industry in decades.
In August, Biden’s CHIPS and Science Act injected $52 billion to support US chip production. As of September 2022, the Semiconductor Industry Association reported 277,000 workers in the US semiconductor industry but had a 0% global share of leading-edge semiconductors. Taiwan and South Korea make up 80% of the global foundry market for chip production. Global VC investments in semiconductor startups have declined from 2021 high of $14.5 billion to $7.8 billion as of December 5, 2022, according to PitchBook. To learn more about the evolution of chips, you can read our overview here.
Venture-backed startups like Cerebras Systems and SambaNova are leading the charge in innovation outside public incumbents like Qualcomm, AMD, and Nvidia. Intel acquired venture-backed Nervana Systems for $350 million in 2016 for deep learning training chips, which was then dominated by Nvidia. Cisco bought venture-backed semiconductor company Luxtera for $660 million in 2018. While the funding has fallen, there is renewed enthusiasm for semiconductors in the US ecosystem, given the pandemic-fueled shortages, increased government support, recent developments in artificial intelligence, and changing geo-political climate.
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