As we begin a new year, and as President Donald Trump prepares for a second term — US-China relations will likely face a shift, because without a strategic & equitable deal — they will likely get much worse than present.
AKA, meaning that Western investors are increasingly locked-in, and locked-out of what once was considered Asia’s most dynamic and fastest-growing VC ecosystem.
As always, there is no consensus among venture capitalists and startups if what is worse is behind us, and if 2025 will be a good year or a dirty rotten Image may be NSFW.
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one.
Of course, many countries across the globe, have unrealistic expectations of renewed dealmaking, higher Start-Up valuations and more open liquidity markets, like England, Italy and Ireland, but the road to future growth is littered with the wreckage of such high falluting expectations.
Sadly the broken down jalopies, like France & Germany, abound, and it is increasingly likely — this is where the rest of Europe is heading as well.
Yet, the future is bright for most all Eastern & far eastern countries.
But not for China.
Becausr while last year was difficult for many VC markets — few ecosystems experienced the declines suffered by China’s venture capital ecosystem…
Once, not long ago, China had a massive tech-savvy population and a burgeoning middle class, that may have helped Chinese Venture Capitalists and their massive investment funds, become the world’s second-largest hub, following Silicon valley, but that status is on the wane, as Chinese start ups hit rock bottom.
A total of $40.2 billion was invested in China last yesr, representing a 36.7% decline from 2023, and an even bigger drop than that, from 2022.
By comparison, the US saw a 29.6% increase in deal value, while India was up 21.6% from 2023.
With similar VC markets having recovered from the funding winter of yester-year, or at least showing signs of improvement, why do Chinese Venture Capital’s prospects look so bad ?
Yet the most important question would be if the Chinese Venture Capital Markets, can recover.
Because as always, global uncertainty, geopolitical tensions, and FUDs, will stifle any opportunity, kill all the StartUps, and remove all need and desire, for venture funding or private equity leveraged investments.
Naturally, no New Issues, will soon tank the Stock Market as well… and that is text book Economics, but feel free to contradict me.
Yet, Truth be told — I am the only Image may be NSFW.
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% Optimist in the room.
But maybe Image may be NSFW.
Clik here to view. the rest of you, pvssies, pessimists, and pursimonious, peanut gallery watchers — can still blame the economic slowdown in the wake of a real world Image may be NSFW.
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current disaster, on COVID-19, plus the broader global VC downturn, or on the FUDs that power the weather, due to the dismal expectations for all StartUp issues today, after the over-extension, the overspending, and the stratospheric valuations, that did so much damage to both America’s & China’s VC ecosystem.
Just look at Seqoia capital that left China in the middle of the Image may be NSFW.
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night, lest all of its Ecmxecutives end up in a Uigur reeducation camp or in a Peking debtor prison.
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Sure, the country’s economic decoupling from the US has also had a big impact, but it is a just a sign of whats to come when China’s leadership knee-jerk reacts and disembowels the golden goose in its crazy quest to get to the golden eggs faster.
Still, the strained relations between the two nations in recent years, consisting mostly of IP theft, national strategies of spying, threatened if not actual trade wars, and concerns over national security antagonism, including the possibility of a thermo-nuclear war, have left all the Startups and their founders, bereft, unclothed, and unarmed, in the middle of the arena, to be eaten by the Image may be NSFW.
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lions alive, like the Christians of olden times, praying Image may be NSFW.
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for salvation Image may be NSFW.
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in the Colosseum of Rome.
Well, what do… they will be remembered as Martyrs on the road to perdition.
As a matter of fact – the most recent examples of this antagonism and economic malaise, was not the Tic-Toc massacre, but the New measures brought in by the Biden administration, which came into force last week, imposing civil and criminal penalties on US investors who back companies developing any new technologies that could be used by China’s military — including AI, quantum computing and semiconductors.
Consequently, many investors have pulled back entirely from investing in the country, or split off their Chinese activities into separate entities.
And then, they thought that they were safe…
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Because back in 2024, when China Image may be NSFW.
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saw its lowest FDI, Foreign Direct Investment, as well as the smallest foreign investor participation, on VC input in deal count in over a decade, with just 8.5% of rounds featuring firms from overseas — the Chinese VC sector lusted for the good old days of 2021, when that percentage had reached 18%.
Public listings for Chinese companies in the US have also become more difficult. In 2022, ridehailing giant Didi Global was forced to delist from the New York Stock Exchange in what has become a symbol of China’s crackdown on domestic tech companies.
The US requirement that all listed companies comply with domestic audit rules, and China’s restrictions on sharing financial data for national security reasons, have made things even harder for the Chinese Start Up technology companies.
Yet, while under received wisdom, by yours truly, and by the realitis of the Global Liquidity Markets, the Chinese government has since softened its approach to the US venture funds, and to the US IPOs, still a lot of fear, uncertainty and doubts remain unaddressed.
And as always FUDs kill companies, sectors, and even countries. And as we will be seeing a new Economy of Poverty for China Image may be NSFW.
Clik here to view. one must wonder if this will lead to war sooner rather that later.
Sadly, China will fall behind Japan, but her prospects will be improved with some form of pressure cooker release that will certainly see change at the top.
Image may be NSFW.
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Furthermore, the pullback in foreign investments — particularly from the US — has increased the reliance on domestic capital, which brings with it even more competition & unhappiness internally as well as complicity, and corruption complications.
Big troubles at home…
And because VC fundraising in China has hit its lowest point since 2015, last year in terms of capital raised with just $55.5 billion amassed across 366 vehicles — the smallest fund count in a decade — we are in for a Image may be NSFW.
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bloody soak.
Lets all now fill up the tub, because on top of that, Chinese startups face reduced access to domestic capital as compared to previous years, and even when they do raise money it comes with some serious and even criminal caveats.
According to a 2024 research paper from the National Bureau of Economic Research, the Chinese government is the majority owner of around half of all limited partners and a minority owner of about a third of GPs in the country. Government-backed LPs are also significantly larger than their private counterparts.
This is not an issue in and of itself, but the same paper revealed that the negatives of receiving commitments from government LPs sometimes outweigh the positives.
Based on a survey of 688 Chinese GPs carried out with private markets service provider Zero2IPO, the paper found that most GPs, even those with government ties, dislike LPs with government ties — the main reason being, the strong-arm of politically motivated interference in any & all decision making.
As a result, Chinese VC firms find themselves under pressure to make investments that are aligned more with local, regional, and national policy, than growth potential & actual financial returns. Indeed, startups that are in sectors deemed less important to political interests may be overlooked in favor of those that can revitalize local economies, even though the possibity to scale, is non existent.
Never mind the FUDs, yet the high cost of failure is a real & present danger for all Founders & StartUps as well as funds and even VC partners, managing or nor.
The fear of losing government capital is also pushing Chinese VCs to try to claw back money from founders when investments turn sour. Redemption rights — a clause that requires companies to buy back shares with interest, if specific targets aren’t met — are rife in China’s VC market, with the Financial Times reporting that they are present in more than 80% of VC and PE deals.
With a lack of liquidity in both the VC and the PE markets, and withball the associated fundraising struggles, it is impossible to deal with the burden of redemption rights that suck the blood Image may be NSFW.
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from the real wealth creating workers, who are the StartUps.
Yet, the government has long decided to support those usurers, and their unjustly used pre-emptive Redemption Rights [RRs] increasingly being used to recoup potential investment losses if a startup doesn’t hit a certain valuation, or does not succeed in turning towards an IPO in a long ago preset timeline.
Founders are being put on a national debtor blacklist, essentially prohibiting them from starting another company, leaving China or even flying in airplanes, and then ending in prisons of ill repute.
Chinese media outlet Caixin reported in September that Shenzhen Capital,Image may be NSFW.
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one of China’s most prominent government backed VC investor — has had at least 35 lawsuits pending, related to RRs Redemption Rights.
Naturally, the lack of foreign capital and the fear of being sued if they raise from a portion of domestic investors, has left founders in precarious positions, causing significant damage to the VC & PE markets, to the point that these firms are leaving the country in droves, like the people leaving Dubai in 2008.
Yet, there is still time to save the baby before it gets tossed out with the bathwater, because while there are short-term solutions at hand, they are, on the main, not part of the agenda of the VC & PE partners, or investors, but rather are part of the arsenal of the ultimate Government decision makers, and should be perceived as MacroEconomic and state-policy controlled solutions for the Exonomy as a whole, and not for nepotism and influence peddling in order to save the cousin of the cousin, ad infinitum.
The Chinese government has to recognize the need to support VCs, Startups, and Founders, because the Chinese Innovation Economy is just about dead on arrival.
Yours,
Dr Churchill
And maybe this is starting to happen, with Premier Li Qiang, pushing for state-owned capital to become more long-term patient capital, focused less on short-term financial gains and more on long term growth, scale, & resilience. He also called for efforts to improve performance, evaluation, and tolerance, of mistakes.
The government is also planning a reform package, to address several pain points across the VC investment life, the investment cycle, and the access to Capital, including options, stock equity, shareholding, fundraising, exit sharing, and portfolio management.
Renewd hope dies last…
Meanwhile, Chinese VCs and startups looking for overseas capital will have to rely more on regions such as the Middle East, Russia, Africa, and Europe. But even with new sources of investment secured, the future of Chinese VC will pivot on domestic policy — and right now that looks not just precarious, but right about dead.