Venture capital funding for Chinese technology startups dropped by 51.5% year on year in the fourth quarter, according to a report by government institute released on Friday.

Why it matters: The decline affirms the so-called “capital winter“ which affected companies and investors in China’s tech sector over the course of 2019. The term refers to a significant slowdown in investment and fundraising activities.

Details: Chinese tech startups closed 403 funding rounds and raised a total of around $6.8 billion from venture capital investors in the fourth quarter, according to a report (in Chinese) by the China Academy of Information and Communications Technology, a research institute under China’s Ministry of Industry and Information Technology.

  • To compare, there were 564 rounds which raised $14.1 billion in the same period in 2018.
  • Early-stage investments, including seed and Series A funding rounds, accounted for 73% of all investment activities in the quarter.
  • More than half of the money raised in the quarter went to Shenzhen-based Tenglong Holding Group, a data center service provider which closed a Series A worth RMB 26 billion (around $3.7 billion). Participating investors included Morgan Stanley Asia and China Nanshan Development Group, a real estate developer.
  • Tenglong’s lion’s share of total funds raised also means that funds raised by other Chinese startups were significantly lower than the same period in 2018.
  • The dramatic drop is attributable to “a cautious investment climate” and “limited investment returns,” according to the authors of the report.

Context: Some 336 startups in China were forced to cease operations in 2019, according to the Financial Times. These companies collectively raised RMB 17.4 billion from investors.

  • Shanghai’s Nasdaq-style high-tech board opened in July in a bid to facilitate improved capital flow into the tech sector. However, more Chinese tech companies chose to list on overseas markets.

Wei Sheng

Wei Sheng is TechNode's feature editor. You can contact him at shengwei [at] technode [dot] com.

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