China’s startup funding remains weak, but could see a revival this year

Startup funding in China remains subdued, although the amount raised in the first half of the year already accounts for more than 50 percent of the total for 2023, suggesting a potential improvement, according to mergers and acquisitions (M&A) data analytics firm Mergermarket.

The amount raised in the country peaked in 2021 at $132.7 billion before declining to $67 billion and $45.4 billion in 2022 and 2023, respectively, according to data presented at the AVCJ Private Equity Forum China in Beijing last week.

From January to June this year, the total amount of startup funding raised in China reached $25.7 billion. Still, the market remains sluggish compared with the pre-pandemic era, although it could see a revival this year.

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“China financing may see a slight improvement this year after a two-year decline from 2021,” Yiqing Wang, Mergermarket’s Asia-Pacific managing editor, said at an event in Beijing.

Another trend is that dollar-denominated funds played a much smaller role. Dollar funds raised $2.6 billion, or just 2.5% of the total, in the first half of 2024, compared with 44% in 2021, Mergermarket data showed.

Meanwhile, Washington is increasingly scrutinizing American investments in some Chinese sectors, including semiconductors, artificial intelligence and quantum computers.

Some U.S. investment houses, such as Sequoia Capital, have separated their China and Asia operations. In 2023, Sequoia China became an independent operation under the name HongShan.

Fang Fenglei, founder and chairman of Chinese private equity firm Hopu Investment Management, told a Mergermarket event that foreign funds will again play a bigger role now that regulators are welcoming “dollar-denominated funds coming into China.”

This article originally appeared in the South China Morning Post (SCMP), the most authoritative daily covering China and Asia for more than a century. For more SCMP articles, visit the SCMP app or the SCMP Facebook page and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.