Venture capital deals in China have experienced a significant decline and are currently on course for their slowest rate in years

September 20, 2023: The Chinese startup ecosystem, which once gave rise to unicorns like ByteDance and Didi, is facing challenges due to slowing economic growth and geopolitical tensions, as highlighted in a recent PitchBook report.

China’s economic recovery from the pandemic has decelerated, and tensions between the U.S. and China have extended into the financial sector, affecting market sentiment. Over the past two years, Chinese regulations have made it more difficult for companies to go public abroad.

Although there have been recent signs of improvement in China’s economy, the decline in early-stage invest

ment activity is a significant setback. The second quarter saw the fourth consecutive quarter of declining deal values, according to PitchBook.

The once-thriving niche of early-stage investors in China had attracted billions of dollars from international institutions to invest in local startups, often with plans for initial public offerings in the U.S.

 However, the report notes a record low of only 10% of deals involving foreign investors, down from approximately 16% in 2018. Additionally, only three funds denominated in U.S. dollars closed in the year’s first half.

The report attributes this shift to several factors, including geopolitical concerns, China’s economic slowdown, and regulatory crackdowns on the tech sector,

 leading some U.S. investors to reduce their allocations to China.

While fundraising activity denominated in yuan and mid-sized funds has increased in Greater China, reaching $28 billion and potentially surpassing 2022 levels, it remains significantly lower than the $131.4 billion raised in 2018.

Challenges persist at the end of the venture capital investment cycle, as market sentiment for IPOs in Hong Kong and the U.S. remains subdued.

 The report notes a decline in exits in the first half of the year and a decrease in exit value, reflecting the broader challenges facing the Chinese startup ecosystem.