China Sees Drastic 98% Drop in Venture-Backed Startup Formations Since 2018 Peak

Beijing – The formation of new venture-backed startups in China has reportedly plummeted by 98% between 2018 and 2023, signaling a significant shift in the nation's entrepreneurial landscape. Data initially attributed to Chinese market research firm IT Juzi indicated a collapse from 51,302 new startups in 2018 to just 1,202 in 2023. However, IT Juzi's founder later clarified that while these figures represented their recorded new companies over specific periods, they might not encompass the total number of startups.

This dramatic decline comes after China surpassed North America in venture capital attraction in the second quarter of 2018, accounting for 47% of global VC funding at the time. The downturn is widely attributed to a confluence of factors, including China's economic slowdown, escalating US-China geopolitical tensions, and President Xi Jinping's intensified regulatory scrutiny on the tech sector. Government anti-corruption drives and increased oversight of successful entrepreneurs have further dampened private sector enthusiasm.

The funding environment has undergone a considerable transformation, with state-backed funds increasingly dominating the market. While overall venture funding in China saw a 32% drop in 2023, reaching $33.2 billion, the focus of investments has shifted dramatically. Advanced manufacturing and new energy sectors now account for a significant portion of fundraising, with semiconductors attracting substantial capital as China prioritizes self-reliance in key technologies.

Early-stage funding has been particularly affected, with a 35% decline in the first half of 2023 compared to the latter half of 2022. This reduction in early-stage capital is a critical concern, as it can hinder the pipeline of future growth-stage companies. Venture capital firms and startups alike are grappling with an environment marked by reduced foreign investment and stricter domestic conditions, impacting the once-booming innovation ecosystem.