Silicon Valley Bank’s Closure Pressure Long Standing Ties Between US Venture Capital And China’s Technology Start-ups

SVB does not rank among the top US banking institutions in the industry but it has been a bridge for Chinese tech start-ups most especially in the United States. Most of the tech start-ups have used SVB for years as their default bank to open offshore accounts to help them handle funding from US private equity and venture capital investors and many of these Chinese enterprises despite going public still chose to maintain their offshore account at the SVB which is based in Santa Clara, California.

Silicon Valley Bank, which functions as a means to ease US money into Chinese start-ups, SVB was a safe harbour for China’s tech elite to store their offshore wealth. However, the news has hit many Chinese investors off guard and with no time to react, the Federal Deposit Insurance Corp seized the bank’s assets and ordered its closure last Friday.

This development is set to add more pressure on the already strained trading links across the Pacific, due to President Biden’s administration’s measure to tighten scrutiny of foreign investment last September and Beijing’s punishment of Didi Chuxing for data violations after it went public in New York in 2021.

Although there are other US lenders that Chinese start-ups and investors can patronise and would get similar services to what SVB provides, any final financial loss incurred can still be managed based on assurances given by the US regulators like the Federal Reserve. SVB collapse has placed a dent in their belief that their money is safe within the US financial system.

By Monday, a number of listed Chinese companies had come forward making statements that their exposure to SVB was limited, like biotechnology firm BeiGene which is headquartered in Beijing claimed that its $175.5 million of uninsured deposits at SVb. Also Shenzhen-listed Ando Health Co, said its deposits at the bank represented only about 5% of its total financial assets, also as with other major banks such as JP Morgan, UBS, Goldman Sachs and Morgan Stanley.

This announcement goes to show that there are more Chinese firms’ who are linked to SVB. Meanwhile, individuals and non-public entities are not mandated to disclose their exposure. Secondly, publicly-traded companies can choose not disclose their exposure as quickly as possible.

But it is still worth knowing that some listed Chinese companies have come out quickly to announce that they do not have any deposits or other business links with SVB,like Hong Kong-listed Meitu, a Chinese smartphone maker and apps developer, has also issued a statement saying, it no longer has account or money with SVB “since the year 2020”.

Meituan founder, Wang Xing also posted on Chinese social media, a screenshot of the Chinese food delivery bank account balance at SVB in July 2011 when it completed its B-round financing. It showed the sum of $61.9 million as Meituan’s balance then.

However, the Chinese public would not sympathize with businesses or individuals for their losses with SVB due to the country’s rigid capital account control, which has led to the creation of a dual-track foreign exchange system which allows rich and wealthy people to own offshore accounts without hindrance.

The effect of SVB’s closure will still have a greater effect on the tech elite and will have to turn back to banks in Hong Kong, Singapore and even Europe to help them gathe funds and maintain their wealth.