The failure of Silicon Valley Bank has affected many Chinese funds and technology start-ups, as the collapsed institution became the main funding bridge for groups operating between China and the US.
The sudden takeover of SVB by US regulators on Friday also cast doubt on the fate of its joint venture in China with Shanghai Pudong Development Bank, which maintains a separate balance sheet and has total assets of Rmb21bn ($3bn).
Silicon Valley lenders play a big role in China’s dollar-based ecosystem for financing fledgling companies, industry insiders say, with funds and startups often holding money in the bank before bringing it to mainland China.
Running on SVB happened so quickly – with $42bn leaving bank coffers in the US – that the decision-makers in China woke up in the morning local time, trying to rescue the money that was in danger.
“We tried on Friday morning, but it was too late. The transfer is still being processed,” said the founder of a Beijing-based technology company with a $10 million limbo. “It’s crazy, we didn’t think this could happen.”
The founder, who asked not to be named, is hopeful that a big American bank will take over SVB’s US assets and make his company whole. Half of the capital is held on the mainland in renminbi in a separate bank, so they don’t notice the immediate payment problem, the founder said.
Several China-based venture capital firms said some of the start-ups in their portfolios are facing similar problems as they cannot access funds stuck in SVBs outside of China. The bank’s collapse comes at a particularly difficult time for Chinese groups to raise foreign capital, with the ecosystem strained by Beijing’s tech crackdown, control of the Covid-19 pandemic and rising geopolitical tensions with Washington.
Dollar investment in the country’s startups fell by nearly three-quarters last year.
SVB is very popular among Chinese biotech groups operating between the US and China. More than a dozen technology and life sciences companies trading in Hong Kong list SVB among the major banks, which could jeopardize millions of dollars earmarked for long-term clinical development programs.
Zai Lab, a cancer treatment developer with offices in Shanghai and San Francisco, is one such group. The company said on Saturday it had an “insignificant” $23 million exposure to SVB, accounting for about 2.3 percent of its cash and cash equivalents held at the bank by the end of 2022.
Chinese regulators are rushing to find a solution to SVB’s local joint venture, in which the US bank holds a 50 percent stake. The Shanghai branch of China’s banking regulator held an emergency meeting over the weekend to discuss the issue, according to one person familiar with the discussions.
SVB’s collapse means it may not be allowed to remain a major shareholder of the venture, according to China’s commercial banking regulations.
In one scenario being discussed, Shanghai Pudong Development Bank could take over SVB’s shares, “but it depends a lot on how SPDB thinks about the venture’s prospects and whether it can maintain other commercial banking licenses in this regulatory environment”, the person said. , adding that there are still no firm plans.
The joint venture, which was founded in 2012, reported a loss of Rmb5.5 million on revenue of Rmb195 million in the first half of 2022.
It said in a statement on Saturday that it has a sound governance structure and is committed to stable operations in accordance with Chinese laws and regulations.