China could completely cut investment into the Silicon Valley, according to the former deputy governor of the People's Bank of China, following intense scrutiny of the world's largest telecom equipment maker. Chinese tech giant Huawei is facing restrictions by several Western governments, amid heightened concerns that its products could be used for spying. It comes at a time when the United States and China are locked in a long-running trade dispute, with market participants increasingly concerned the conflict could spill over into a so-called "tech war."

I can tell you, after the Huawei events, all the Chinese money into Silicon Valley stops. And no U.S. money will want to invest into China either. Zhu Min Tsinghua University

"The psychology has really changed, because technical war is a most interconnected war, (with) U.S. capital moving everywhere and Chinese capital moving everywhere," Zhu Min told CNBC on Tuesday. But "I can tell you, after the Huawei events, all the Chinese money into Silicon Valley stops. And no U.S. money will want to invest into China either," he added.

In addition to his former role at the Bank of China, Zhu is also former deputy managing director at the International Monetary Fund.

'Short-term pains'

As well as being one of the world's top smartphone makers, Huawei is also a leader in telecom infrastructure — particularly in relation to the next generation of mobile phone networks, known as 5G. But concerns about the security of Huawei's technology have intensified in recent weeks, particularly in the U.S., Canada, Germany, Britain and Australia. A major accusation made by the United States and other countries in the midst of the ongoing trade war is that Beijing commits technology theft, though China denies this.

A flurry of negative headlines has thrust Huawei's public relations team into overdrive. On Tuesday, Huawei Chairman Liang Hua, told world leaders gathered in Davos that his company could shift away from Western countries if it continues to face restrictions. Liang also told reporters at the World Economic Forum (WEF) that Huawei follows regulations wherever it operates. When asked whether it was possible for China to abruptly divert money away from Silicon Valley, John Zhao, founder and chief executive of Hony Capital, replied: "By numbers, that seems to be the case." "But it really suggests something that is much deeper than the number has started to show. First of all, it shows the interdependency that the world has built with each other … But it also suggests that while there are some short-term pains to be resolved, we need to have a long-term view," Zhao said, while speaking to CNBC's Nancy Hungerford in Davos on Wednesday.

'Inherent weakness'

Baidu, Alibaba and Tencent — collectively referred to as BAT — are among China's biggest investors into Silicon Valley. Tencent has a 40 percent stake in Epic Games, the North Carolina-based firm behind hit game "Fortnite." Baidu has artificial intelligence labs in Silicon Valley. China has openly declared its intent to become a world tech leader over the next decade, investing hundreds of billions of dollars in technologies like AI and autonomous vehicles.