The beginning of 2024 saw venture capital investments in China decline to a level reminiscent of the early days of the Covid-19 pandemic. Despite this overall downturn, the artificial intelligence (AI), electric vehicle (EV), and clean energy sectors emerged as bright spots, attracting significant investor interest.
China’s prominence in Asia’s funding scene remained noticeable, as it secured eight of the top ten deals within the continent. Notable among these was the impressive US$1 billion funding secured by Moonshot AI in February.
Nevertheless, venture capital investment in China saw a 30% drop compared to the previous quarter, totaling US$11.5 billion. This figure was reported by KPMG as part of their global VC market analysis and marks the lowest since Q1 of 2020. The dip was particularly striking, considering the typical slow start to the year due to the Lunar New Year celebrations and delayed financial decision-making post the end of the fiscal year.
Global market challenges such as exits scarcity, heightened interest rates, and ongoing geopolitical uncertainties have resulted in a cautious stance from venture capital investors.
Investors shifted towards more selective deal-making and provided bridge funding to existing portfolio companies, continuing a downward trend that persisted throughout 2023. Last year’s VC deals in China amounted to US$42.6 billion, marking a 27.4% decrease in value year-on-year, as per GlobalData’s January report.
While fundraising activities in China remained relatively strong, they fell short of previous peaks, particularly for domestic yuan-denominated funds. Foreign direct investment also saw a decline as multinational investors divested from China-based assets, according to KPMG’s findings.
The decision to liquidate China Evergrande impacted Hong Kong’s VC market, as funds with stakes in the property developer faced losses, potentially reducing available investment liquidity.
Conversely, the AI, clean energy, and EV sectors continued to receive funding. In addition to Moonshot AI, EV manufacturer IM Motors and Shanghai-based spacetech firm Yuanxin Satellite both secured deals exceeding US$1 billion. MiniMax AI also raised US$600 million in a Series B round led by Alibaba Group Holding in March.
AI remained a resilient sector amidst the VC investment slump, both globally and in China. Last year, China saw the emergence of an average of one new unicorn start-up weekly, predominantly driven by AI investments. These unicorns boasted an average valuation of US$3.8 billion, according to a collaborative report published during the five-day Zhongguancun (ZGC) Forum in Beijing.
Other major deals in China’s first quarter included investments in clean-energy firms Huakong Power and Guangxi CNGR New Energy. Only two non-Chinese companies, India-based PharmEasy and South Korean AI firm Stage X, made it into Asia’s top ten deals.
Zoe Shi, a KPMG China partner, highlighted the growing interest in EV trucks due to China’s industrial market needs and the frequent use of trucks in industrial transport. She noted the necessity for advancements in energy and new materials for the sector’s full expansion.
Across Asia, both investment value and deal activity saw a decline in the first quarter, with a significant drop in late-stage funding rounds. The median deal size for series D and later rounds fell to US$22.5 million from around US$70 million in 2021. However, other funding stages maintained a relative consistency.
The report concluded by addressing concerns over declining consumer confidence and consumption in China, suggesting that potential economic stimulation policies could bolster confidence later in the year.
