China's Tech Funders Worry They Could Be the Next Silicon Valley Bank

These banks could suffer the same fate as SVB if the People's Bank of China tightens monetary policy, suggesting China's tech ambitions are vulnerable to inflation. The joint venture, Shanghai Pudong Development Silicon Valley Bank, was the first tech bank in China and had an initial registered capital of RMB 1 billion, which subsequently increased to RMB 2 billion. Despite the failure of SVB, the venture lending model it championed has been instrumental in the success of several high-tech industrial development zones supported by regional banks-city commercial banks in particular-that aspire to become the Chinese equivalent of SVB. Contemporary Chinese city commercial banks originate from the urban credit cooperatives in the 1980s, when local governments and enterprises established joint stock commercial banks to meet the needs of an opening economy. The Guiding Opinions designated 10 banks to lead the implementation of the investment-loan linkage program, including one policy bank and two national banks authorized to finance projects in all five demonstration zones. This warning holds for Chinese banks that aspire to be the next SVB. Apart from the China Development Bank and Bank of China, the remaining eight designated banks are not necessarily the best at risk management, and their track record is far from spotless. Although SVB's failure has not discouraged the Chinese government and banks from using venture debt to support Chinese tech SMEs and advance self-sufficiency in strategic sectors, it has triggered a reevaluation in China regarding the SVB financing model. A low-interest rate environment has been a boom for Chinese banks to provide venture debt financing to burgeoning tech startups, which in turn supports Xi's push for tech self-reliance.