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(Bloomberg) — Venture capital investment in China fell more than 7% to a four-year low despite a series of giant chip deals, as investors cooled startups and moved away from the economic and regulatory turmoil.
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The value of VC bets fell to $69. 9 billion in about 4,200 deals, the lowest amount since 2019, according to data collected through Preqin. This is the second consecutive contraction after a 44% drop in 2022, at the height of China’s Covid restrictions and towards the end of a brutal crackdown on sectors such as e-commerce and gaming.
The drop reflects waning interest in startups around the world, after the collapse of Silicon Valley Bank and economic uncertainty halted the torrent of capital that sent internet valuations soaring in the Covid era. But as the U. S. economy stabilizes, the outlook for China remains bleak given the volatile post-Covid recovery, emerging youth unemployment, and a volatile regulatory environment.
Foreign capital dried up in particular as tensions with the United States escalated last year and spooked risk-averse investors, though this was partly offset by an inflow of government- and corporate-backed capital in priority sectors from chips to AI. persist until 2024 as the national champions seek funding.
Four semiconductor deals, plus funding from memory chip maker Changxin Memory Technologies Inc. and GTA Semiconductor Co. , are among the 10 most sensible deals compiled by Preqin. Shein, an online retailer, the only Internet company for customers on that list, raising $2 billion. AI start-ups such as Baichuan or Moonshot have also secured investment or intend to do so this year.
The drought has tech experts worried, as venture capital has helped create Chinese tech leaders, Tencent Holdings Ltd. But waves of regulation since 2020 and 2021 are noted to have crippled China’s startup ecosystem, where domestic and state-backed investors are now more commonly monetary. sectors such as semiconductors, which are at the heart of Beijing’s long-term ambitions.
“Because of lack of dry powder, people are slowing down their investment pacing,” said Murong Yang, managing director of Future Capital. “People are also very cautious because it’s really hard to see what sector would work and what wouldn’t given fluctuations in capital markets.”
While venture capital investments in the U. S. fell 40% in 2023 according to Preqin, AI remains a bright spot. Booming U. S. bets such as Anthropic surged 15% in the U. S. , driven by interest in ChatGPT’s debut.
Funds flowing into Chinese AI deals declined 10% in 2023, according to Preqin data, in part because deep-pocketed big tech leaders like Baidu Inc. , Alibaba and Tencent still dominate the field. Along with competitors like Meituan, those conglomerates are expected to continue investing in promising startups or fund their own in-house generative AI services.
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