VC investment in China’s tech sector down more than 30 per cent in first quarter as coronavirus takes its toll

China’s tech sector has seen reduced investment activity over the past four months with the novel coronavirus outbreak inflicting a heavy new blow to the already shrinking venture capital market, a report shows.

Investments targeting China’s so-called new economy – a term loosely applied to tech-based industries including artificial intelligence, fintech and web-based services – saw a 31.3 per cent decline to 119.1 billion yuan (US$16.8 billion) in the first quarter, from 173.5 billion yuan in same period last year, according to a report by Beijing-based information service provider ITJUZI.com.

The number of investment deals also fell, from 1,143 in the first quarter last year to 634 in the same period this year, representing a 44.5 per cent decline.

“The suspension of businesses, lay-offs, and pay cuts caused by the coronavirus outbreak have made entrepreneurs and business owners among the hardest hit group under the pandemic,” the report said. “Unable to conduct legal and financial due diligence on site, investment organizations had to pause or put off their investment activities. On the other hand, they have to offer financial help to the companies they’ve already invested in.”

The report, published on March 30, noted that less than 100 start-ups were founded in the first quarter of 2020, accounting for under 3 per cent of the 3,161 companies founded during all of last year. Even then, most of the new start-ups were founded in January before the pandemic broke out in China.

Vexed by a trade war with the US and economic uncertainty, analysts have characterised China as going through a “capital winter”, reflected in the significant slowdown in fundraising activities since 2018.