VENTURE capital investments in China are falling sharply this year, making it one of the worst-performing countries globally, after the Communist Party's crackdown and an overall decline in tech valuations.
The value of venture capital deals in the country tumbled 44 per cent to US$62.1 billion through October, compared with the same period in 2021, said research firm Preqin. China once rivalled the US for capital invested in startups, before President Xi Jinping's administration embarked on sweeping efforts to reform the practices of giants such as Alibaba Group and Tencent.
In addition, venture firms have pulled back globally, as investors sour on money-losing technology companies and publicly traded stocks tumble. Still, China is among the worst performers, with a venture investment drop worse than the global decline and the pullback in the US.
"The cost of capital has gone up dramatically," said Jenny Lee, a managing partner at GGV Capital, this week during a panel at Hong Kong FinTech Week. "Every dollar that we have today now has a price."
One bright spot in China's venture landscape has been the semiconductor sector, which has drawn US$7.9 billion in deals so far in 2022 - a 24 per cent increase compared to the same period last year. Xi has made it a national priority for China to build up its own semiconductor industry, an undertaking with fresh urgency after the US enacted broad measures to ban exports of chips to China.
Lee said growing US-China tensions have driven many investors to look at investing in regional clusters.
Investors have to ask, "which technologies may be bifurcated because of the US' and China's considerations?" she said.
China's venture landscape has been aggravated by the Communist Party's harsh Covid Zero policy. Lockdowns in cities such as Shanghai and Zhengzhou have hampered all manner of business, from advertising and investments, to the production of Tesla automobiles and Apple iPhones. Before this year, Chinese venture funding had risen every year except for one in the past decade, Preqin data showed. BLOOMBERG