Investment in China’s Startup Scene Has Dried Up

Nitin Konde, Apoorva Bajj

Sep 24, 2024 — 2 min read

Investment in China’s Startup Scene Has Dried Up

A comparable decline has occurred in the fundraising efforts of Chinese venture capital firms, which has led to a reduction in the number of new businesses that are established in China on an annual basis.

The Chinese startup scene was portrayed in a recent media piece as being in a grave state, with founders, investors, and venture capitalists expressing negative remarks.

According to a report citing information from a Beijing-based executive, the entire industry has recently perished before our eyes. There is no longer any spirit of entrepreneurship. The entire sector is saddened to see this.

IT Juzi’s Data Reveals a Sad Story

Data from IT Juzi, which was quoted in the research, indicates that the number of firms that have been established in China up to this point in 2024 is just 260. This figure is on course to go below the goal of 1,202 in 2023 and represents a 99% decrease from the highest point of 51,302 in 2018.

It was stated by the CEO of IT Juzi in comments that were published on X that the data do not represent all companies. He also stated that despite the fact that China's venture capitalists and founders have been facing issues in recent times, the country still possesses "great creativity and entrepreneurial spirit."

On the other hand, venture capital fundraising has experienced a comparable decline. Since the beginning of the year, funds denominated in Yuan have raised the equivalent of $5.38 billion, which is a significant decrease from the peak of about $125 billion in 2017. According to Preqin, a privately held London-based investment data company, dollar-denominated funds have raised less than one billion dollars, which is a significant decrease from the high of $17.3 billion dollars in 2022.

The Present Scenario

The collapse of China's startup scene occurs at a time when the country's economy is still slowing down and continues to cool overall, according to new data released recently.

In the meantime, Beijing's industrial policies have contributed to the worsening of economic imbalances, which in turn are contributing to the current economic downturn. In addition, the anti-corruption campaign, the "common prosperity" drive, and the crackdown on the private sector that President Xi Jinping has implemented have all contributed to a reduction in entrepreneurial activity.

According to the research, state-run funds have assumed a more significant role as a result of an increase in the number of investors' withdrawals, and they currently account for around 80 percent of the total capital in the market.

The investment managers of these funds are also required to guarantee returns, which encourages them to look for opportunities with low risk or to steer money to Beijing's designated priorities.