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TikTok pressure could further harm Silicon Valley's relationship with China

The TikTok debate has exposed a deepening fissure among venture capitalists, over their attitudes toward China.

Why it matters: Silicon Valley and China could morph from frenemies into full-blown adversaries.

China skeptics in Silicon Valley are fundamentally opposed not only to the China Communist Party's ideology, but also to its data collection policies (which they say is far more pervasive and pernicious than that of U.S. internet companies).

  • They also are fed up with the asymmetric relationship with it comes to tech, whereby U.S. companies must censor and open the code kimono to operate in China.
  • There's also a belief among many China skeptics that America is falling way behind on consequential technologies like AI.
  • As Founders Fund partner Trae Stephens puts it: "[America's] best engineers are optimizing how to get cat videos .... We have sat back and assumed that our hegemony is infinite."

Globalist VCs argue that those averse to China misunderstand local dynamics, and mistakenly view tech competition as a zero-sum game.

  • A Silicon Valley investor active in China argues that while China's barriers to entry for American companies are unfortunate, its government has actively sought to foster at least some version of capitalism. Banning Chinese products like TikTok, he believes, could prove counterproductive.
  • "The Chinese government cares a lot more about the data about its citizens than U.S. users," he adds.
  • Other U.S. investors suggest to Axios that many of their peers are overreacting to China based on the politics of the moment, which isn't in keeping with a long-term asset class like venture capital. They add that the free flow of ideas more important than the flow of capital, and benefits both countries.

What to watch: A big variable could be how big tech companies like Apple and Amazon refer to China at the (now-delayed) Congressional antitrust hearings. For example, they may argue that breaking up big U.S. tech companies would cede ground to China, thus emboldening the skeptic class.

The bottom line: Expect VC firms to begin using their "side" of this disagreement as a calling card, when it comes to pitching both entrepreneurs and limited partners.

Go deeper ... Exclusive: Under fire from Washington, TikTok pledges U.S. job growth

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