China’s internet sector sees steep drop in funding amid rising geopolitical and regulatory risks
- The plunge in funding follows an intense period of regulatory action that has targeted some of China’s biggest internet companies
- Tougher audit requirements for US-listed Chinese companies have also clipped the exit options for US dollar-denominated funds in China
Funding for China’s internet companies at the beginning of this year dropped sharply, as start-ups and venture capital firms navigate an uncertain regulatory environment, ongoing geopolitical tensions and slower industry growth.
In the first quarter of 2022, the number of fundraising deals in China’s internet industry declined 38.3 per cent year over year, while fundraising volume plunged 76.7 per cent, according to a report published on Tuesday by the China Academy of Information and Communications Technology (CAICT).
China’s internet companies, which raised more than US$15 billion in the first quarter in 2021, raised only US$3.51 billion in the same period this year, according to CAICT, a state-run think tank that reports to China’s Ministry of Industry and Information Technology (MIIT), one of the country’s major regulators of the technology industry.
CAICT data shows that the decline of fundraising activity in China’s internet sector started in the second half of last year, when internet companies raised US$8.46 billion and US$6.12 billion in the third and fourth quarter respectively.
At the same time, companies hoping to go public on US stock exchanges, traditionally one of the most attractive IPO destinations for Chinese internet start-ups, are facing scrutiny by regulators in both the US and China over audit inspections as tensions between the two countries persist.
That has clipped the exit options for US dollar-denominated funds in China, which in the past decade have been major growth drivers for China’s internet companies.