(Bloomberg) -- Venture capital investment in China shrank more than 7% to its lowest in four years despite a series of giant chip deals, as investors cooled on startups and steered clear of economic and regulatory turmoil.
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The value of VC bets fell to $69.9 billion over about 4,200 deals, the lowest dollar amount since 2019, according to data collated by Preqin. That marked the second straight contraction after a 44% slump in 2022, the height of China’s Covid curbs and toward the tail end of a brutal crackdown on internet sectors such as e-commerce and gaming.
The fall mirrors dwindling interest in startups worldwide, after the collapse of Silicon Valley Bank and economic uncertainty stanched the torrent of capital that drove up internet valuations during the Covid era. But while the US economy is stabilizing, the outlook for China remains bleak given a choppy post-Covid recovery, rising youth unemployment and a volatile regulatory environment.
Capital from abroad has dried up in particular as tensions with the US escalated last year and spooked risk-averse investors, though some of that was offset by an influx of government-backed and corporate money into priority sectors from chips to AI. That’s expected to persist in 2024 as national champions seek financing.
Four semiconductor deals, including funding for memory chipmaker Changxin Memory Technologies Inc. and GTA Semiconductor Co., ranked among the 10 biggest transactions compiled by Preqin. Online retail upstart Shein was the lone consumer internet firm on that list, raising $2 billion. AI startups like Baichuan or Moonshot also either scored financing or aim to do so this year.
The drought worries tech insiders because venture capital helped create Chinese tech leaders from Tencent Holdings Ltd. to Alibaba Group Holding Ltd. But waves of regulation since 2020 and 2021 are deemed to have paralyzed the Chinese startup ecosystem, where domestic and state-backed investors now mostly finance industries such as semiconductors that are central to Beijing’s longer-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.”