The Chinese startup ecosystem has experienced a dramatic contraction, with new company formations plummeting by an estimated 98% since their peak in 2018. Data from IT Juzi, a Chinese data provider, indicates a sharp decline that has sparked concerns among investors and observers. This downturn aligns with observations made by figures like Steve Jurvetson, who stated in a recent tweet, > "The staggering drop in new startups in China. Entrepreneurship is one barometer of authoritarianism and its effect on culture."
Specifically, the number of new startups recorded by IT Juzi fell from 51,302 in 2018 to just 1,202 in 2023, with projections for 2024 suggesting a further drop to approximately 260. While IT Juzi's CEO, Wen Feixiang, has clarified that this data may not encompass all new companies, he acknowledged the significant challenges faced by China's venture capital and founder communities. This dramatic reduction reflects a broader shift in the country's economic landscape.
The severe downturn is largely attributed to a significant implosion in venture capital fundraising within China. State-run venture capital firms have reportedly intensified efforts to reclaim investments from insolvent startups or those failing to go public by set deadlines. Additionally, new, stricter requirements, including forcing founders to personally guarantee loans, have deterred potential VC deals and foreign investment.
The impact on entrepreneurial sentiment has been profound, with one Beijing-based venture capital executive quoted as saying, "The whole industry has just died before our eyes. The entrepreneurial spirit is dead. It is very sad to see." Reports describe vacant offices and abandoned equipment in once-thriving science parks across the country. This trend raises questions about the long-term economic vitality of an economy where disruption and innovation are increasingly stifled.
The decline coincides with broader economic challenges in China and a strategic pivot towards greater state control. Despite the overall contraction, some sectors, such as advanced manufacturing and new energy, continue to attract investment. While the rate of new formations has slowed drastically, China still hosts a substantial number of existing startups and unicorns, and IT Juzi's CEO maintains that the country retains "great creativity and entrepreneurial spirit."