Intel’s venture capital arm has emerged as one of the most active foreign investors in China’s artificial intelligence and semiconductor startups, as the $147 billion chipmaker receives billions of dollars from Washington to fund its tech race with Beijing.
Intel Capital holds stakes in 43 China-based technology startups, according to a Financial Times portfolio analysis. The venture fund has invested in more than 120 Chinese companies since it was founded in the early 1990s, according to data provider Crunchbase.
The fund, which invests outside the balance sheets of chipmakers, has continued to back emerging Chinese companies over the past year even as many U.S. companies have withdrawn from the market under pressure from U.S. authorities.
In February, Intel Capital invested in a $20 million funding round for Shenzhen-based AI-Link, a 5G and cloud infrastructure platform company, and last year led a $91 million funding round for Shanghai-based micro-optics hardware maker North Ocean Photonics.
Rising geopolitical tensions between Washington and Beijing have increased scrutiny of private investment flows between the two economic giants as they compete for technological and military dominance.
The Biden administration in June announced rules to limit U.S. funding for Chinese technologies that could be used for military purposes, including AI, quantum computing and semiconductors. The restrictions are expected to be finalized later this year.
Intel Capital’s “investment was a classic example of how it helped build consensus on international travel restrictions,” said a person familiar with the Biden administration’s thinking on the new rules.
The company’s current investments in China include about 16 AI startups, 15 companies in the semiconductor industry, as well as companies developing cloud services, electric vehicles, communications, virtual reality systems, and batteries.
The Treasury Department is considering whether to include exemptions for some venture capital deals, but if the U.S. restrictions take effect, Intel Capital could be forced to pull out of some companies.
But the US group has slowed its dealmaking in China over the past 18 months, completing just three deals since the start of 2023, according to data provider ITjuzi. Investment restrictions and a slowing Chinese economy, as well as the longer-term impact of Beijing’s crackdown on tech companies, have hit start-ups’ valuations and viability.
A February report by the House of Representatives China Committee on the Chinese Communist Party said American venture capital firms have invested billions of dollars in companies that support China’s “military, surveillance state, and Uighur genocide,” including $1.9 billion in AI companies and $1.2 billion in semiconductors.
The report specifically singled out five U.S. venture firms — Sequoia, GGV, GSR Ventures, Qualcomm Ventures and Walden International — but did not mention Intel Capital, which has become one of the largest U.S. investors in China after rivals withdrew.
The head of a major U.S. fund with a long track record of doing business in China said Intel Capital is “much more aggressive” in China than Qualcomm’s venture arm. “Intel is aggressive in everything.”
John Moolenaar, the Republican chairman of the House China Committee, said the incident highlighted the need for stricter regulations.
“The Chinese Communist Party remembers the old Communist slogan: ‘The capitalists will sell us a rope to hang them with,'” Moulenaar said. “Strong foreign capital controls are needed to prevent U.S. companies from investing in companies with close ties to the Chinese Communist Party’s military.”
Intel Capital declined to comment.
The two largest U.S. venture capitalists in China, Sequoia Capital and GGV Capital, spun off their China operations last year amid growing political pressure, and Qualcomm, Walden and GSR also continue to invest in Chinese startups.
In March, Intel received about $20 billion in U.S. grants and loans to fund the expansion of its semiconductor factories, the largest grant from the government’s Semiconductor and Science Act of 2022 aimed at strengthening the domestic semiconductor industry. The package will support more than $100 billion in U.S. investments from Intel in advanced semiconductor manufacturing facilities, including building megafactories in Ohio and Arizona.
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Nasdaq-listed Intel has a large operation in China, where it employs about 12,000 people and expects it to account for 27% of its global sales by 2023.
Chinese multinational Lenovo is one of Intel’s three biggest chip customers, along with Dell and HP, accounting for 11% of global sales. Last month, Intel’s China unit bought a 3% stake in Shenzhen-based telecom equipment maker Luxshare.
Intel Capital’s China operation is run by Tianlin Wang, a longtime Intel employee who has been head of the unit since 2017. There are six other investment directors in China. Intel Capital, which has invested more than $20 billion worldwide since the early 1990s, is led by Anthony Lin in San Francisco.
According to PitchBook data, Intel Capital has been involved in investments worth a total of $1.4 billion in Chinese startups since 2015. That figure refers to Intel Capital’s total investments, not individual investments, as the firm does not disclose investment amounts.
In 2014, Intel Capital said it had invested $670 million in more than 110 Chinese technology companies, and in 2015 alone it invested $67 million in eight Chinese technology companies. Since then, Intel Capital has not disclosed the size of its investments in China.
According to a February 2023 report by the Center for National Security and Emerging Technology, a Washington think tank, on national security risks associated with U.S. investments in Chinese AI companies, Intel Capital was involved in 11 deals with such companies between 2015 and 2021. A person close to Intel said there were just four AI deals during that period.
In some cases, U.S. funds have taken directorships at chipmaker Horizon Robotics and Easy Tech, a company that designs AI chips for facial recognition and is backed by the Zhuhai provincial government.
“Intel Capital’s investments in Chinese AI companies have led to the formation of strategic collaborations that have the potential to benefit Chinese companies in ways that complement the Chinese government’s strategy,” the report said.
In one case, Intel Capital helped fund the creation of a Chinese company that was later sanctioned by the U.S. The fund was one of the early investors in AI voice recognition group iFlytek, acquiring a 3% stake in 2002 and selling its stake two years later. The company was one of six Chinese companies banned by the U.S. in 2019 for its involvement in alleged human rights abuses in the Xinjiang Uighur Autonomous Region.
“The fear of being left behind in the AI era is creating a sense of urgency at Intel Capital,” said the head of a rival Chinese venture firm that is co-investing with Intel Capital. “Intel is facing very stiff competition in the U.S. in AI and can’t afford to fall behind. So it has to look around the world for places to put its money into AI, and China is one of the few options.”
