China venture capital funding plunges amid slowing economy and weak global investor sentiment

Venture capital (VC) funding in China in the first 10 months of this year declined nearly 30 per cent from the same period last year as economic uncertainties continue to weigh on investor appetite.

China saw US$34.6 billion invested across 2,675 venture capital funding deals from January to October this year, a “considerable decline” from the same period last year, according to a report published by data analytics firm GlobalData on Friday.

The data represents a fall of 29.1 per cent in terms of deal value and a 15.7 per cent decline in the number of VC deals across the period, according to GlobalData.

Some of China’s most notable transactions during the period include a US$1.8 billion state-led investment into GTA Semiconductor, an auto chip manufacturer, and a US$1 billion fundraising by electric vehicle maker Rox Motor Tech, GlobalData said.

In a report published earlier this week, Chinese research firm Zero2IPO Research found that the number of deals in the country in the first nine months across venture capital, private equity and other early stage investment firms dropped 25.9 per cent year on year.

China’s total value of private investments in the same period also plunged 31.8 per cent from last year, according to Zero2IPO.

The decline in venture capital activity in China comes as the country struggles to recover from several years of strict anti-pandemic curbs, a regulatory crackdown on the private sector and escalating trade tensions with the US, which has seen Washington scrutinise cross-border investments.

According to data published in July by research firm Preqin, funding for VC firms focused on investing in China from April to June this year dropped 54.2 per cent from the previous quarter, as investors grew increasingly hesitant to bet on a country locked in tech and trade tensions with the US.

US venture capital giant Sequoia Capital said in June it was splitting its business into three geographic units, with each adopting a distinct brand, including an independent Chinese entity amid escalating trade tensions between the world’s two-largest economies.

However, China’s decline in private investment deals also comes amid a global VC industry slump, as governments and central banks have raised interest rates to battle inflation.

In the first 10 months of 2023, the number of VC funding deals in the US declined by 40.6 per cent year on year, while total funding value dropped 43.6 per cent, according to GlobalData.

“The decline in VC funding deal volume and value is now a global phenomenon and China is not an exception to this trend,” GlobalData’s lead analyst Aurojyoti Bose wrote. “China continued to dominate the Asia-Pacific VC landscape despite the decline.”

China also remains a “key” market in the VC industry and “stood just next to the US” in terms of both deal number and value, Bose wrote.

China accounted for 15.8 per cent of the total number of VC funding deals globally between January and October and 17.1 per cent of the total value of global deals, the firm wrote. The US accounted for 35 per cent and 48.8 per cent of deal numbers and value respectively, it said.