Last year, investors outside of China participated in 955 deals worth a combined $54.8 billion in the region, the most since 2018, according to the latest PitchBook Greater China Venture Report.
That activity meant that about one in five VC deals included an investor from outside of China, which PitchBook defines as covering the territories of Hong Kong, Macau and Taiwan. That rate was on par with recent years. Overall VC investment in the region came in at $113.8 billion across 5,815 deals, exceeding both 2019 and 2020 levels.
Despite bullishness among VCs, there’s evidence that LPs have been less enthusiastic. Fundraising by VC firms in China fell 38% year-over-year to $36.9 billion in 2021.
The strength of funding for startups in the region also contrasts with the performance of Chinese equities. The Morningstar China index has fallen 34% since the start of 2021.
In recent weeks, there have been signs that the era of regulatory uncertainty is coming to an end.
Chinese regulators have sought to assure investors and companies that it supports overseas listings and has a plan for complying with US audit requirements, according to state media agency Xinhua. The report also signaled that regulators were winding down a crackdown on tech platforms.
The outlook for US IPOs is of particular concern for VC-backed companies in China, as IPOs have accounted for more than 97% of all exit value in recent years, according to PitchBook data.
Another bright spot for Chinese companies has been domestic GDP, which grew 8.1% in 2021, according to government statistics, amid global demand for physical goods and few COVID-19 cases in the country. However, China’s near-term economic prospects have dimmed against a backdrop of growing domestic coronavirus cases this year, the war in Ukraine and a shaky property market.
Related read: Geopolitical risk threatens to trip up venture capital’s global strides
Featured image of Beijing’s Zhongguancun Science Park by Sino Images/Getty Images
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