China denies claims that it is preventing domestic tech companies from accepting foreign investment, even as foreign investors continue to withdraw from key sectors.
Li Chao, an official with the National Development and Reform Commission, said on May 22 that the government has never instructed Chinese IT companies to avoid foreign funding.
He went on to say that China supports international cooperation and will continue to open its economy to foreign companies and investment.
Meta trading blocked due to security concerns
Chinese regulators have reportedly carefully told local tech companies to refuse U.S. funding until they receive government approval.
ByteDance and AI startups Moonshot AI and StepFun were among the listed companies.
Concerns arose after the commission announced in late April that it had blocked Metaplatforms’ $2 billion acquisition of AI startup Manas.
Although Manas is registered in Singapore, its products are manufactured in mainland China.
Regulators ordered the deal halted, citing national security risks.
As a result, Manas is now reportedly trying to raise nearly $1 billion from outside investors to meet the Chinese government’s demands to back out of the deal.
This informal guidance occurs between official policy and administrative advisors and is often referred to as “window guidance” in Chinese regulatory practice.
In addition to monitoring cross-border transactions for threats to national security, the commission is also responsible for the Negative Market Access List, which sets limits on foreign investment in certain industries.
Li said foreign investments must comply with Chinese laws and not jeopardize national security or other interests.
Although the Chinese government insists it has not shut down the market, the national security approval process remains shaky, making it difficult for foreign investors to determine what level of participation is appropriate.
Despite claims to support international investment, international investors are wary of regulatory risks as the commission’s actions send mixed signals.
Foreign investors withdraw from China’s data center sector
Foreign private equity firms that have invested heavily in China’s cloud computing sector for years are now exiting the data center industry.
Increasing political and regulatory pressures are making it increasingly difficult for foreign investors to maintain control over their digital infrastructure.
Princeton Digital Group, backed by Warburg Pincus, plans to sell its Chinese assets in a deal that could fetch up to $1 billion, three people familiar with the matter said.
The sale of the group, which owns data centers in six Chinese cities, would essentially end a decade of direct investment in China’s digital infrastructure by global acquirers.
Major private equity firms such as Bain Capital, Warburg Pincus and Carlyle Group began investing heavily in China’s data center sector in 2017.
Expecting long-term returns like stable infrastructure, they were attracted by growing demand from cloud providers associated with Alibaba, Tencent, and ByteDance.
However, even as China’s cloud industry continues to expand, the Chinese government’s tightening cybersecurity and data management regulations have made foreign ownership of critical digital infrastructure more delicate and difficult.
The changes have already caused several international investment funds to exit and sell their holdings to domestic investors.
Last year, Bain sold its data center assets in China to a consortium led by Shenzhen Dongyang Industrial for $4 billion, leaving the Bridge data center outside China.
Similarly, Carlyle invested in VNET Group in 2020 and has gradually reduced its exposure over the past two years.
This was achieved through refinancing with a government-backed fund, and the company was fully exited when CATL acquired the company.
Global private equity firms are exiting China’s data center industry and moving billions of dollars to other Asian economies, including Malaysia, Japan and India.
Strong AI-driven demand and more stable laws make these countries more attractive for long-term investment.
Despite China’s insistence that it welcomes international investment, cybersecurity laws and tighter regulations on IT transactions are making foreign companies wary.
Many companies now consider owning sensitive infrastructure in China too risky and are moving their investments elsewhere.
