LDN - Business

Chinese start-ups scramble for alternatives to SVB

[March 14, 2023] By Samuel Shen, Kane Wu and Roxanne Liu

SHANGHAI/HONG KONG (Reuters) -Stunned by the sudden collapse of Silicon Valley Bank, the main go-to foreign bank for the majority of Chinese start-ups, entrepreneurs and venture funds are scrambling for alternatives despite U.S. regulators averting a banking crisis by guaranteeing all deposits of the troubled bank.

Chinese start-ups and fund managers said they are still looking to move their money out of SVB once they can. Some of them are turning to bigger U.S. banks, while a few Chinese lenders such as China Merchants Bank and the Industrial & Commercial Bank of China are also rushing to fill the gap.

Such banks have offered account services similar to those of SVB, but found it hard to crack the U.S. bank's dominance among early-stage start-ups in China, where SVB has operated for more than two decades and has a local joint venture.

As SVB was one of the few banks that made it easy for start-ups to open bank accounts for dollar financing, it was the dominant foreign bank of choice for young companies in China, advisors and companies said.

"China Merchants Bank told us they can set up an offshore account for us within a week," said one start-up founder who gave his surname as Hong, describing how he had been offered a number of proposals by banks, including Zheshang Bank , to solve his issues with SVB.

CMB, ICBC and Zheshang Bank did not immediately respond to requests for comment.

On Sunday evening, U.S. banking regulators moved swiftly to backstop all deposits at SVB, which was shuttered on Friday, putting to rest fears that startups would struggle to pay their employees this week.

Still, Wu Yujun, chief executive at Hangzhou-based banking platform start-up QBIT, said in the past three days it had received six times as many queries on creating accounts as usual, mostly from SVB clients.

CB International Bank, a U.S.-headquartered bank serving mainly Asian small- and medium-sized companies, said it has been contacted by many start-ups and U.S. dollar funds seeking to open accounts quickly so they can deposit funds they have withdrawn, or plan to withdraw, from SVB.

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Destroyed SVB (Silicon Valley Bank) logo is seen in this illustration taken March 13, 2023. REUTERS/Dado Ruvic/Illustration

The bank's chairman Sam Su said the firm was also asking companies to consider converting their USD holdings into offshore RMB deposits to diversify risks.

STILL HUNTING

Some venture funds said they were in a quandary as SVB had certain advantages and was especially friendly to early-stage start ups.

"We are still searching for a bank which we could safely open an account with," said an executive at a Chinese venture capital fund with deposits at SVB who declined to be identified as she was not authorized speak to media.

"Not a lot of banks are friendly to venture capital."

China is home to thousands of start-ups and venture capital investment is expected to recover gradually this year after funding in 2022 was battered by the country's zero-COVID policy, a share market slump and U.S.-China tension.

"Withdrawal is the easiest option but no other bankers in the U.S. provide the level of services SVB used to offer," said an executive at a major Chinese investment bank, which has deposits at SVB via its private equity arm, adding that the bank's priority is to have at least "a few accounts" in the United States.

Going forward "everyone will need to set up two accounts - one for domestic capital and the other for foreign capital," said Stephen Chen, co-founder of Shanghai-based start-up Lead Digital.

"But the market space left by SVB will be filled by the next bank, which is an opportunity," said Chen, whose company counts Sequoia Capital China and Wu Capital among its investors and banks with SVB.

(Reporting by Samuel Shen and Li Gu in Shanghai, Roxanne Liu in Beijing, Kane Wu and Selena Li in Hong Kong; Writing by Kane Wu and Brenda Goh; Editing by Anshuman Daga and Christina Fincher)

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