Amid higher interest rates, lack of exit pathways, and heightening geopolitical tensions between the US and China, venture funding has taken a hit globally, but particularly in Asia. Private companies in China raised $12bn in Q1 2024, down 42% on the previous quarter, a steeper drop than the global decline of 12%. The number of deals has decreased by 20% quarter-on-quarter, double the global fall of 10%. Total venture funding from foreign investors into China deals contracted sharply from $67bn in 2021 to $19bn in 2023. Deals were predominantly in the AI, semiconductor, and clean technology verticals. AI was a driving force. AI VC deals in the Greater China region by May 2024 reach almost $6bn – around half of 2023’s full-year total of $12bn.
Prequin today published its Territory Guide: Greater China Venture Capital Deals report. The report shows that while foreign venture capital (VC) firms have been pulling back from investing in Chinese companies in recent years owing to higher interest rates and geopolitical tensions, Chinese domestic investors have been stepping in to fill this gap. The report goes on to highlight that the largest rounds of funding came from China’s state-backed players, including banks, government agencies, and local authorities. They participated in around 60 of the 100 largest deals from 2021 to June 2024, twice as many as from 2017 to 2020. Chinese tech giants such as Meituan and Alibaba Group are also increasingly active.
Greater China investors accelerate domestic investments in AI, semiconductors, and clean technology
Amid higher interest rates, lack of exit pathways, and heightening geopolitical tensions between the United States and China, venture funding has taken a hit globally, but particularly in the Greater China region.* Despite these challenges, China remains home to 2 of the 10 largest VC deals globally and 8 of the 10 largest VC deals in the Asia-Pacific (APAC) region, according to Preqin data as of June 2024. These mega deals were predominantly in the artificial intelligence (AI), semiconductor, and clean technology verticals – all industries that the Chinese government intends to grow and support. Of these mega deals, AI was a driving force. AI VC deals in the Greater China region by May 2024 reach almost $6bn – around half of 2023’s full-year total of $12bn.
Trade tariffs, with US restrictions on US VC firms and companies, are causing foreign investors to pull back from the region, while the Chinese government supports state-backed players to step in the gap. Other domestic investors, such as tech corporations, are also heavily investing.
Valerie Kor, lead author of the report at Preqin, says, “It’s a challenging environment for venture capital in the Greater China region, as investors struggle with exiting their investments in private companies. However, as foreign investors pull back, Chinese domestic investors such as tech corporations and state-backed funds have stepped in to fill the gap, investing heavily in key verticals covering AI, semiconductors and clean technology that are aligned with China’s broader economic policies.”
Additional key findings include:
Clean technology in China sees strength: Clean technology VC deals in China overtook the US in aggregate deal value and volume in 2022 and 2023, respectively. In 2022, these deals aggregated to $12bn, surpassing that of the US at $11.6bn, and further increased 22% year-on-year to almost $15bn in 2023, double the $7bn from the US. A third are from investments in electric vehicle companies. In terms of volume, over 300 clean technology VC deals were concluded in China in 2023, more than the 200 that were in the US.
Greater China VC deal volume has significantly fallen compared to the global figure: Private companies in Greater China raised over $12bn in Q1 2024, down 42% on the previous quarter, representing a steeper drop than the global decline of 12% in the same period. The number of deals has also decreased by 20% quarter-on-quarter, double the global fall of 10%. These data trends demonstrate that amid heightening geopolitical tensions and a lack of exit pathways, venture funding has taken a hit in Greater China.
Foreign VC firms have pulled back from investing in Chinese companies: Total venture funding from foreign investors into Greater China deals contracted sharply from $67bn in 2021 to $19bn in 2023. American firms have also been absent from the largest deals in recent years, following increased scrutiny from the US government. In contrast, the flow of venture funding from Greater China investors was relatively steady, dipping 17% year-on-year from 2021 to 2022, before increasing
3% in 2023 to reach over $60bn.
Note to editors:
Currency is USD
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