The Chinese government is determined to prevent its entrepreneurs from moving large sums of money out of the country, to try to encourage them to reinvest their profits back into the domestic economy.

The strategy, however, is proving tough to enforce, and doesn’t always succeed in promoting Chinese interests abroad, it seems.

China is well known for being a country that believes in the power of technology, but in a recent article the Financial Times revealed that Venture Capital firms in Silicon Valley are struggling to get early stage tech investment deals over the line because they cannot get approval from Chinese authorities to move money from China to the US, or to swap Renminbi for Dollars.

Part of the reason may be that, far away in Beijing, authorities are suspicious of such transactions, which have been used in the past to disguise illicit money transfers. The powers that be have little knowledge of the Silicon Valley tech scene, and naturally early stage startups often struggle to deliver a tangible product in advance of seed funding.

As a result, many VC firms have had to pull out of deals, or worse still, have not been able to deliver a promised investment because they cannot move the required funds into the US.

Ironically however, many of China’s largest and most successful companies, such as Alibaba and its fintech subsidiary Ant Financial, have no problem accessing dollars thanks to their business models and the amount of trade that they do overseas, and are therefore able to invest overseas with impunity.

So while China’s largest companies can pursue aggressive overseas investment strategies, smaller investors are having to turn their backs on promising deals, and worse still, risk quickly gaining a reputation for being unreliable business partners, according to several people interviewed by the FT.

Overall, Chinese investment into the US has fallen significantly year on year, although this likely has more to do with Donald Trump’s America First policies. The President is determined, like his Chinese counterpart, to try to encourage US companies to reinvest their profits back into America.

Rhodium Group, a Chinese research firm based in New York, calculates that investment by Chinese companies into the US has fallen by more than a third year on year.

China has targeted sectors such as real estate and luxury in its attempt to curb overseas investment, but it seems that tech investment has been caught in the crosshairs. That said, it may help the Chinese Venture Capital to smarten up their acts. According to Crunchbase, in 2015 Chinese investment firms were involved in 210 tech investments – five times more than in 2012, whilst the amounts invested swelled to $9.9 billion – a nine times increase over the same period.

At least some of that money may have been invested unwisely, with Chinese investors guilty of falling too easily for the mythical promise of many early stage Silicon Valley companies that end up burning through cash without delivering the promised growth. So, Beijing, by introducing tighter capital controls, could be doing its entrepreneurs a favour – saving them from pouring money into an investment black hole.

Could the same scenario occur across Europe and the UK? It certainly seems likely that, going forward, in order to get deals over the line, tech firms will have to work much more closely with their Chinese investors, filling out a lot more red tape, and submitting to far closer scrutiny.

It could be a win win scenario, or it may prove restrictive and counterintuitive to slow down fast moving tech startups in a market where timing is everything.

It is also doubtful that it will address the wider issue of curbing capital movement. The US recently rejected Ant Financial’s bid for MoneyGram, the Dallas based money transfer firm. There is still suspicion on both sides about whether business deals could be politically motivated.

That’s a problem that will have to be solved before money can truly flow freely between the two countries in the way that free market economists and fans of globalisation would love to see.

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