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The third quarter was far from favorable for Chinese startups looking to raise money. Data shows that for upstart tech companies in the country, Q3 2022 was the worst time to raise venture capital since Q1 2020, with far less capital invested than either the rest of 2020 and 2021, or for most of 2018 and 2019.
China is hardly alone in seeing its domestic startup scene see slowing capital inflows, but recent news puts the country-specific information into new context: Given today’s Chinese tech share sell-off, there is fresh pressure on technology companies’ valuations in the country, and that could impact startup fundraising.
If China saw fundraising decrease 10% in Q4 2022 from Q3 2022 — measured in dollar terms, not the number of funding events — we’d see startups facing the slowest quarter since the onset of 2018, according to CB Insights data. A steeper decline would put Q4 2022 as the nadir in the nation for the last five years.
Why are Chinese tech stocks suffering today? After a period when the sale of the nation’s equities onshore was at least somewhat meddled with, the value of major and minor Chinese tech companies fell today in the wake of the Chinese Communist Party’s every-five-year confab. This time ’round, current Chinese Premier Xi Jinping secured not only another five years in power, he also solidified a cabinet of like-minded allies.
The context is clear: The Xi method of managing China remains ascendant. And investors in tech companies, still licking wounds brought on by a regulatory barrage led by Xi — which included some reasonable ideas like dismantling certain anti-competitive practices along with some less enticing policies — are not enthused.
The result? A bloodbath (American share price changes as of the time of publishing):
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