The end of ideas

[Bloomberg]( Follow Us //link.mail.bloombergbusiness.com/click/19155610.65579/aHR0cHM6Ly90d2l0dGVyLmNvbS90ZWNobm9sb2d5/582c8673566a94262a8b49bdB3da63a81 [Get the newsletter]( Hi folks, it's Shelly in Hong Kong. Washington just zapped more money from Silicon Valley. It issued [new rules Monday]( that give teeth to previous promises to block Chinese and other foreign venture capitalists from investing in U.S. companies involved in critical technology, infrastructure and data. The pullback was underway: Investment by Chinese VCs in U.S. startups fell by more than half in the first half of 2019 from a year prior, according to a [new report]( by consultancy Rhodium Group. But more alarming is the impact that stricter foreign investment rules in the U.S. has had on money flows in the opposite direction. Even though there're no new restrictions against Americans investing in Chinese VC funds, U.S. venture investment in China dropped to less than $4 billion last year, its lowest level since 2014, Rhodium said. During the trade war, much attention has centered on how the U.S. has grown dependent on Chinese money, and imported items such as clothing and tech components. There's been far less focus on how much China's tech industry has benefited from and relies on American money. U.S. funds and investors account for almost one-fifth of the venture capital raised since 2000 by Chinese companies, according to Rhodium. Many of China's most successful tech companies, from Alibaba and ByteDance to Meituan and Xiaomi, have gained handsomely from American dollars helping to prop up their growth. "If you add the money from passive American investors like pension funds, you would get to more than a third," Rhodium's Thilo Hanemann told me. "The U.S. has played an outsize role in nurturing China's technology sector and a curb in activity could have important implications." Less U.S. money will further depress liquidity in China. It will impact exit strategies, since having American backing can help Chinese companies attract investors hoping for a U.S. IPO. It will also prompt Beijing to intervene more in its tech industry, just like the [new state-backed funds]( injecting money into critical tech, like the $29 billion semiconductor fund announced in October to foster a homegrown chip supply chain. That's not to say China's pullback from the U.S. won't make an impact on Silicon Valley. Chinese VCs invested $15 billion in U.S. startups as part of funding rounds worth a combined $69 billion since 2000, or less than 2% of the roughly $1 trillion raised by all U.S. startups, according to Rhodium. Particularly concerning for Silicon Valley is that Chinese venture capitalists have served as important risk takers in the U.S. startup scene, making bets on smaller upstarts with experimental technology in fields like health, pharmaceuticals and biotech. While ride-hailing and hotel sharing has made our lives easier, Uber and Airbnb are unlikely to solve the world's most pressing problems like cancer or climate change. Ultimately, impeding the cash flowing between Beijing and Silicon Valley will do more than just harm returns, it will sever the flow of ideas. If you read one thing [Russian Hackers Attacked Burisma in Midst of Impeachment Inquiry[arrow]]( And here’s what you need to know in global technology news [Grindr Shares Location, Sexual Orientation Data, Study Shows (1)[arrow]]( [Nintendo Plans Life-Sized Video Game at Universal Studios Japan[arrow]]( [Apple Says It’s Helping FBI Investigate Florida Terrorist Attack[arrow]](  Like Bloomberg's Fully Charged? [Subscribe for unlimited access]( to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. Before it's here, it's on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can't find anywhere else. [Learn more](.  You received this message because you are subscribed to Bloomberg's Fully Charged newsletter. [Unsubscribe]( | [Bloomberg.com]( | [Contact Us]( Bloomberg L.P. 731 Lexington, New York, NY, 10022