Intel to invest $500 million in Chinese technology ventures

China's stock market may have shed a lot of weight in the first few months of this year, but that hasn't stopped foreign investors from betting on the China story. Intel Corp. has announced that it has completed its first round of investment in China and plans to invest another $500 million in the country over the next several years.

The Silicon Valley chipmaker's investment unit, Intel Capital, has created this half-billion dollar fund to focus on the company's strengths in technology in the startup space, including companies working with wireless broadband, technology media and telecommunications.

Holdfast Online Technology Co. and Newauto Video Technology Inc. will be among the businesses targeted by Intel Capital's China Technology Fund II, Intel said in a statement in Beijing today. Holdfast Online is a developer of technology for online gaming, and Newauto Video makes video equipment and network gear for use at the Beijing Olympics. Both of those companies are in the process of expanding their businesses, said Cadol C. Cheung, Intel Capital's Asia Pacific managing director.

However, it's not that Intel has woken up to China's potential only recently, but had been investing in the country for the last 10 years. It had established its first China-focused fund, with $200 million, in 2005, and had invested in 28 companies through it, three of which have listed publicly.  Encouraged by the response, it is now going for a bigger chunk of the pie that is China's expanding technology market.

Intel is also building a $2.5 billion chip factory, its first in Asia, in the Chinese port city of Dalian. The Asia-Pacific region, including China, generated $5.3 billion, or 50 per cent, of the company's sales in the fourth quarter.

China has seen a lot of foreign investment in recent years, with a record $1.4 billion coming from US investors. But the technology sector has proved to be somewhat tricky, with the Chinese government's obsession with state control and privacy issues, and draconian laws have often been passed to address these concerns.

Early this year, for example, the government surprised investors in Chinese online-video companies by announcing that video-streaming Web sites must be owned or controlled by the government, except for some existing sites. The industry is still waiting for more clarity on those rules.

Intel Capital's president Arvind Sodhani agrees that investment in start ups is inherently risky, but is more concerned with the bigger picture where the country has the largest cell phone market in the world, is enjoying explosive internet penetration and personal computer sales are increasing at double-digit rates annually. Sales of silicon chips, Intel's core product, will surpass $28 billion in 2011, driven by demand for computing and consumer electronics, as per the latest estimates.

Sodhani said the fund, which should be used up in five to seven years, is the chipmaker's single largest in one country, and intends to ''foster innovation and entrepreneurship in China''.  Brushing aside policy concerns, he said, ''Policy makers are focused on all the right things to promote the development of technology. China is going to become one of the largest markets in the world.''

Talking figures
Last year, Intel Capital invested about $639 million, 37 per cent of which was being spent outside the US, compared with less than five percent in 1998. Since 1991, Intel Capital has invested more than $7.5 billion in about 1,000 companies across more than 45 countries. China, Taiwan and South Korea made up 21 per cent of Intel Capital's global investment in 2007, more than any region outside of North America. Investment in China was the largest of those Asian countries by far.