US dollars exit China’s VC market, ending 2-decade marriage that enabled rise of start-ups

International investors in China’s most successful unicorns, including TikTok owner ByteDance and fashion giant Shein, are still waiting to cash out

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A street sign for Wall Street is seen outside the New York Stock Exchange in New York City. Photo: Reuters

Ben Jiangin BeijingandWency Chenin Shanghai

Published: 7:00am, 17 Jul 2024Updated: 7:07am, 17 Jul 2024

A sea change is taking place in China’s venture capital (VC) industry as the two-decade marriage between US investors and mainland start-ups comes to an end, casting a shadow over the country’s technology landscape, according to industry insiders and market data.

While US dollar funding from global investors, brokered by a generation of Chinese dealmakers who shuttled back and forth across the Pacific, facilitated the rise of the country’s most successful tech firms over the past decade, the money is quickly drying up. Foreign capital in China’s venture capital industry plunged 60 per cent year on year to US$3.7 billion in 2023, just 10 per cent of the peak in 2021, according to research firm Dealogic.

The “cycle is broken” and the bifurcation of US funds and China tech start-ups is set to widen, said Winston Ma, a law professor at New York University.

American investors reaped big returns when Chinese start-ups pursued their initial public offering (IPO) in the US, but the channels for cashing out have significantly narrowed in recent years - especially after Beijing initiated a cybersecurity probe into the New York listing of Didi Chuxing in the summer of 2021. The ride-hailing giant later delisted and paid a US$1.2 billion fine.

An American flag is seen in front of the logo for Chinese ride hailing company Didi during its IPO on the New York Stock Exchange, June 30, 2021. Photo: Reuters

International investors in China’s most successful unicorns, including TikTok owner ByteDance and fashion giant Shein, are still waiting to cash out, as their IPO plans remain up in the air. The South China Morning Post reported this month that Shein’s plan to float its shares in London, after the company was turned away by New York regulators, has hit regulatory roadblocks.

Meanwhile, Washington is increasing its scrutiny of US investments in certain Chinese sectors, including semiconductors, artificial intelligence and quantum computing. US investment houses GGV Capital, GSR Ventures, Qualcomm Ventures and Walden International were subject to a probe by a US Congressional committee last year over their deals in China in sensitive technology areas.