China’s Startup Ecosystem Collapses as New Venture Formations Plunge 98%

China’s once-booming venture capital industry is experiencing a severe downturn, with the number of new startups plummeting from 51,302 in 2018 to just 1,202 in 2023, according to data provider IT Juzi. This decline is starkly evident in science parks and innovation hubs across the country, where vacant offices and abandoned equipment have become commonplace, according to a stunning FT story.

Industry insiders attribute the crisis to a combination of factors, including China’s economic slowdown, heightened US-China tensions, and President Xi Jinping’s policies targeting the tech sector. The government’s anti-corruption drive and increased scrutiny of successful entrepreneurs have further dampened the private sector’s enthusiasm. The funding landscape has shifted dramatically, with state-backed funds now dominating the market. This has led to more conservative investment strategies, favoring lower-risk sectors like advanced manufacturing over traditionally popular areas such as biotech and consumer technology. Founders face increasingly stringent terms, including personal liability for investments and asset checks. Many established VC firms are downsizing operations and exploring overseas opportunities.