SVB shockwaves ripple through Chinese startups

The collapse of Silicon Valley Bank has caused panic not just in the United States tech industry but also in China. The bank has been a key player for years among Chinese startups.

In recent days, many startups in the world’s second-largest economy have issued statements to reassure their investors that their deposits with SVB will not impact their operations.

Before the lender failed and was taken over by American regulators this month, Silicon Valley Bank was the 16th-largest US lender. 

In foreign markets, SVB’s reputation for financing about half of all American venture-backed technology and healthcare companies made it a popular choice for firms, including those based in China.

BeiGene, one of China’s largest biotech companies that specializes in the development of cancer drugs, said that the collapse of SVB would have “no major impact” on its operations. 

Cash deposits

It pointed out that uninsured cash deposits in Silicon Valley Bank totaled only US$175 million, or about 3.9% of its cash and other investments.

Zai Lab, a biopharmaceutical company headquartered in Shanghai, issued a statement saying that the lender’s collapse would have no impact on its operations, including the ability to pay wages and make payments to third parties.

Other startups, such as Andon Health, Sirnaomics, Everest Medicines and Jacobio Pharma, have issued similar statements.

After SVB failed, the Biden administration stepped in and ensured that all customers would be able to get their deposits back, even those who had more than $250,000 in their accounts. 

That is the maximum amount that the Federal Deposit Insurance Corporation typically covers when a bank fails, but more than 90% of Silicon Valley Bank accounts were above that amount.

With their SVB deposits frozen, many companies could have been at risk of failing themselves, so the Biden administration said it would step in to guarantee they would get their funds back.

On Chinese social media, there has been concern that the reimbursements may apply only to customers in America.

“Is it true that only depositors who are US citizens can get their money back? What about us?” asked one post on Weibo, the Chinese version of Twitter.

William Hanlon, a partner at Seyfarth Shaw, told Voice of America Mandarin in an email that the FDIC as receiver “will not categorize account holders by nationality” and “will treat all depositors equally based on their status as depositors.”

Bridge bank

David M Bizar, another partner at Seyfarth Shaw, said the FDIC is continuing to operate SVB as a full-service bridge bank while it searches for buyers of its assets.

“It can be expected that the United States will continue to maintain these deposit accounts and keep them from losing their value so long as it maintains them in its receivership,” he told VOA. 

“And that the FDIC as receiver will not sell these deposit accounts to purchasers who would be permitted under the sale agreements to reduce their values after the transfers,” Bizar said.

So far, several Chinese companies have publicly said they were able to withdraw all their deposits at SVB.

Silicon Valley Bank carved out a unique role in the Chinese banking scene. It served roughly 2,200 clients and advised government regulators who were eager to build the country’s tech sector. 

The California-based bank supported startup companies that not all lenders, especially the big commercial ones in China, would accept because of higher risks.

In 2010, then-CEO Ken Wilcox brought the entire board of directors to China to showcase the importance he attached to the market, according to Chinese media reports. 

In a 2019 interview, when he was SVB’s chief credit officer, he said Silicon Valley Bank was “a model for” the country.

SVB approached China in two different ways. One involved wholly owned operations in major tech centers, including Beijing, Shenzhen and Shanghai, where it advised startups on how to manage overseas funding. 

Joint venture

The other involved a 50-50 joint venture with Shanghai Pudong Development Bank, also known as SPD Silicon Valley bank, which operates under a similar model as SVB.

Following the collapse, Chinese policymakers signaled stricter oversight to improve financial market security.

The South China Morning Post quoted Liu Xiaochun, the deputy director of the Shanghai Finance Institute, as saying it was inappropriate to set up a similar specialist bank in China.

He argued that to avoid potential losses in supporting tech and health startups, large commercial banks should establish branches to finance innovation while managing risk exposure at headquarters.

This article is republished courtesy of Voice of America. Read the original article here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.