China plans to roll out new measures to coax venture capital (VC) – including funds based overseas – into the country’s technology sector, according to a notice from the State Council, the national cabinet.
International investors will be incentivised to set up yuan-denominated funds within China to facilitate domestic investments, the council said in the notice issued Wednesday, which named foreign backers’ investment experience and service strengths as reasons for the move.
Qualified institutions will be encouraged to issue corporate bonds and debt financing instruments to help fund their investments, and state-owned enterprises will be supported as they devote resources to industry leaders in advanced technologies. China will also support insurance institutions as they make their own investments in VC funds.
“Developing venture capital is a key step to promoting the virtuous cycle of technology, industry and finance,” the cabinet said.
As global supply chains become subject to fragmentation, the venture capital landscape is also undergoing the same constrictions
China also plans to expand its pilot programme for Qualified Foreign Limited Partnerships (QFLP) and guide foreign institutions to conduct cross-border investment within the scope of regulations, according to the council.
Despite state-driven initiatives to attract more foreign VCs, geopolitical headwinds will make this a difficult task, said Alex Capri, a senior lecturer at the National University of Singapore.
“As global supply chains become subject to fragmentation due to decoupling and de-risking efforts, the venture capital landscape is also undergoing the same constrictions,” Capri said.
Capri said the US Outbound Investment Transparency Act, which requires US entities to notify the federal government of investments in sensitive technologies in “countries of concern”, has created a roadblock to investment in China.
In 2023, 56 new unicorns were established in China according to the Hurun Global Unicorn Index, down from 107 in 2022.
Meanwhile, a total of 8,322 new funds were established in China’s VC and private equity market in 2023. This was a year-on-year decrease of 4.7 per cent according to a June 9 report by CVINFO Institute, a unit of Beijing-based China Venture Investment Consulting.
Newly established VC funds in China totalled US$614 billion in 2023, marking a year-on-year decrease of 9.4 per cent and a second consecutive year of decline.