China’s Venture Funding Tumbles Precipitously After Crackdown
The value of venture capital deals in the country tumbled 44% to $62.1 billion through October, compared with the same period in 2021.
(Bloomberg) -- Venture capital investments in China are falling sharply this year, making it one of the worst-performing countries globally after the Communist Party’s crackdown and an overall decline in tech valuations.
The value of venture capital deals in the country tumbled 44% to $62.1 billion through October, compared with the same period in 2021, according to research firm Preqin. China once rivaled the US for capital invested in startups, before Xi Jinping’s administration embarked on sweeping efforts to reform the practices of giants like Alibaba Group Holding Ltd. and Tencent Holdings Ltd.
In addition, venture firms have pulled back globally as investors sour on money-losing technology companies and publicly traded stocks tumble. Still, China is among the worst performers, with a venture investment drop that is worse than the global decline and the pullback in the US.
“The cost of capital has gone up dramatically,” Jenny Lee, a managing partner at GGV Capital, said this week during a panel at Hong Kong FinTech Week. “Every dollar that we have today now has a price.”
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One bright spot in China’s venture landscape has been the semiconductor sector, which has drawn $7.9 billion in deals so far in 2022 -- a 24% increase compared to the same period last year. Xi has made it a national priority for China to build up its own semiconductor industry, an undertaking with fresh urgency after the US enacted broad measures to ban exports of chips to China and prohibit Americans from working in certain positions of its semiconductor sector.
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The growing tensions between the US and China have driven many investors to look at investing in regional clusters, GGV’s Lee said.
Investors have to ask “which technologies may be bifurcated because of the US and China considerations?” she said.
China’s venture landscape has been aggravated by the Communist Party’s harsh Covid Zero policy. Lockdowns in cities like Shanghai and Zhengzhou have hampered all manner of business, from advertising and investments to the production of Tesla Inc. automobiles and Apple Inc. iPhones. Before this year, Chinese venture funding had risen every year except for one in the past decade, Preqin data showed.
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