In the first four months of 2022, the value of new venture capital (VC) deals in China was US$24.7 billion, down 44 percent from the same period last year. There appears to be several reasons for this, including Beijing’s zero-Covid policy, which is seen as a threat to business, and China’s evolving position on homegrown tech. Around 18 months ago, China kicked off a crackdown on its technology firms due to antitrust and security concerns. While China remains an attractive destination for venture capital funding, leaning more towards hard tech, it is increasingly looking like a riskier investment destination.
One beneficiary of China’s apparent loss is India. The world’s second most populous nation has seen the value of new venture capital deals shoot up. Not only does India appear more tech-friendly than China, it’s also a fast-growing market with increasing internet adoption. As such, venture capitalists, especially those with an eye for soft tech start-ups, are turning to India.
Status of venture capital operations in Asia
VC investments in Asia hit a new record in 2021, totaling US$165.1 billion, up 50 percent from 2020, according to Crunchbase data. The previous regional record was set in 2018, at US$150.2 billion. Unsurprisingly, Chinese companies were the biggest recipient of VC funding, accounting for nearly 48 percent of all funding in Asia. Chinese companies took in six of the 10 largest funding rounds last year, including shopping platform Xingsheng Youxuan’s US$2 billion raise last February. The US$78.5 billion raised in China was a 50 percent increase from 2020.
Indian companies were the second highest recipients of VC funding. Companies in Asia’s second most populous country saw US$37.6 billion invested, representing a 12 percent increase from 2020. Israel, Singapore, and Indonesia rounded up the top five, while companies in Vietnam and South Korea were also major recipients of VC funding. Meanwhile, the world’s third largest economy, Japan, saw VC funding dip 14 percent to below US$5 billion.
China’s tech crackdown and the impact of zero-Covid
While VC funding in Asia as a whole is unlikely to fall dramatically in 2022, there are signs of a downturn, particularly in China. The value of venture deals in the country tumbled 44 percent to US$24.7 billion in the first four months of 2022, according to data from the research firm Preqin. The decline in China is almost four times the global average and twice the rate of decline in the US.
There are several reasons for this. To start, technology and growth stocks have seen billions wiped off their valuations over the past 12 months. After a decade of surging valuations, many tech stocks, which trade largely on future revenue potential, were looking very expensive. As a result, investors pulled back from higher risk deals, meaning less backing for such companies and stocks. We’re also seeing higher inflation and interest rates globally. Higher rates mean the cost of growth increases, which has compounded the run on the tech industry.
More specifically to China, Beijing’s policies, regulations, and interference have influenced a paradigm shift in VC funding in China. In November 2020, the Communist Party (CCP) embarked on a crackdown against tech giants, which started when the regulator prevented Jack Ma’s Ant Group from listing in the US.
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