Chinese startups are optimistic despite political, economic uncertainty: report

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Despite global economic and political uncertainty, Chinese startups are generally positive about their business prospects and plan to raise capital and further expand their workforce this year, said Silicon Valley Bank in its 2019 Startup Outlook report.

The report, published last month, surveyed 1,377 startup executives from the US, the UK, Canada and China.

The findings show that eight in 10 Chinese startups think positively about this year’s business conditions. However, compared with last year, a growing number of startups expect fundraising will be more difficult. Of the entrepreneurs surveyed, 28% say that fundraising is “extremely challenging” as opposed to 13% in the US. This may be due to in part to government efforts to reduce financial risk, which has had some effect on Chinese venture capital fundraising and investing, the report says.

The majority of Chinese startups expect business conditions to improve in 2019. (Image credit: Silicon Valley Bank)

The trade war between China and the US also adds more uncertainty to business conditions. “The Sino-US relation and trade policy drew attention from both US and Chinese startups,” said Dave Jones, president of SPD Silicon Valley Bank, in an email. The report finds that two-thirds of Chinese startups are concerned that the trade policy between China and the US will have a negative impact on their businesses. In the US, 40% of startups are worried about the negative impacts of the trade war on their businesses.

Looking ahead, around half of the respondents expect their next source of funding to come from venture capital. However, more than 60% of Chinese startups have set their eyes on an initial public offering (IPO), expecting to eventually go public. Jones noted that the percentage is higher than their peers in the US. “Most US and UK startups think their most likely exit path is to be acquired.”

More than 60% of Chinese startups expect to go public. (Image credit: Silicon Valley Bank)

On top of increasing difficulty in fundraising, 32% of Chinese startups said that it is extremely challenging to find talent with the necessary skills and 60% say it is somewhat challenging. Still, six in 10 of those surveyed say they plan to expand their workforce this year, and product development, research and development, technical, and sales positions are in high demand.

Corporate taxes and access to talent are the top two public policy issues that Chinese startups say have the most impact on businesses like theirs.

Consistent with the central government’s push for China to be a world leader in artificial intelligence technology, the Chinese entrepreneurs saw AI as the most promising sector today, and expect it to remain so a decade from now.