Venture capital investments into China’s tech sector declined 31.3% year on year in the first quarter as a result of the Covid-19 outbreak hitting its already-shrinking venture market, according to a recent report.

Why it matters: The data indicates China’s venture capitalists are cautious because of the pandemic that is expected to further drag on the country’s economic growth.

  • The dramatic decline in venture capital funding to tech companies is due to both a decrease in the number of new startups and a more cautious approach by venture capital (VC) firms amid the coronavirus outbreak, Xu Miaocheng, investment vice president at Beijing-based VC firm Unity Venture, told TechNode.
  • “There is already a downturn in the number of new tech startups in the past two years, and the number is further declining in the first quarter because of the coronavirus outbreak. Under those circumstances, VC firms are continuing to stick to the conservative investing strategy that they had in the past one to two years,” (our translation) Xu said.

Details: Investment in China’s so-called new economy sector was RMB 119.1 billion (around $16.8 billion) in the first quarter, compared with RMB 173.6 billion in the same period last year, according to a recent report (in Chinese) by

  • The new economy sector includes technology-driven industries such as telecommunications, biotech, and internet-based services, according to the report. 
  • The number of VC funding deals to new economy companies also fell to 634 in the quarter from 1,143 in the first quarter last year.
  • The biotech sector has attracted the most VC funding with startups raising a total of RMB 11.7 billion in 40 deals.
  • The number of newly founded startups in the tech sector was less than 100 in the first quarter, and most of them were founded in January, the report said.

Context: China’s tech startups have been experiencing a period of financing hardship known as a “capital winter”—a significant slowdown in investment and fundraising activities—over the past year.

  • VC investment into Chinese companies from in 2019 through mid-November fell to $35.6 billion from $93.4 billion during the same period in 2018, according to a December report by Crunchbase News.

Wei Sheng

Writing about semiconductors and telecommunications.