China's Startup Ecosystem Collapses as New Venture Formations Plunge 98% 63
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.
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.
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Re:Startups? (Score:5, Informative)
And, of course, China isn't really communist. Hasn't been for over 40 years {Deng Xiaoping made his famous statement "Getting rich is glorious" in 1978). Oddly, that's when their economy started working. Xi JipIng is starting to put that policy in reverse, and we're seeing the results of that, too.
Re:Startups? (Score:5, Insightful)
Worked with a Chinese business partner for a while who unfortunately had to return to the mainland.
He pointed out to me that the Chinese system combines the worst aspects of Capitalism and Communism. You have to work your ass off, the bosses get rich, but you are constantly told that everything still belongs to the people, and the bosses are in constant fear that the CCP can take it all away at any time.
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The bosses are right to fear. Anything you think you own in China, instead belongs to the state. Capitalism only exists there in a sandbox. The host government overrides it whenever the CCP decides to flex their muscles.
Re:Startups? (Score:5, Insightful)
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When a system ceases to foster and reward merit it will fail. It almost doesn't matter if it breaks down by allocating all the wealth to just a few people, or by allocating all the wealth equally to everybody.
I wonder if this comment describes a nominally Communist or authoritarian China or a income inequality plagued US. I think it would be hard to argue that the top billionaire titan of tech have displayed many thousands of times more merit than their top employees.
and absolutely uncorrelated with economic downturn (Score:2)
- China is in an economic downturn and deflation
- Zero percent loans for venture capital are gone
but uncorrelated with the lack of speculative level startup companies in China.....
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It's not like they *can't* invent stuff. Look at the global technological importance of Taiwan, a country with roughly the population of Burkina Faso or Mali. Now imagine all of China, a country of 1.4 billion, running under the same system. It's almost inconceivable what a difference that work make, not only to China, but to the world.
Now of course China has a longstanding political beef with the independence of Taiwan, but it is the technological and supply chain dominance that they would achieve by an
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Dominance that would of course fade as quickly as China forced its politics on Taiwan. In addition to the world withdrawing due to the required invasion and conquest.
Same with Putin and Ukraine. Even if he'd succeeded in a handful of days, Russian politics would have rapidly destroyed Ukrainian potential.
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Thinking through consequences is not a strong suit for dictators.
Here's a thought experiment. Fill Madison Square Garden with people and have everyone flip a coin ten times. Statistically speaking about 19 people will have their coin come up heads ten times in a row. If you were one of those people, you'd probably feel like there was something very special about your coin.
That's what dictators are -- people who've taken big chances on the rise to power and had their coin come up heads every time. This
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To be fair to Putin, his current stupidity isn't short-sighted, it's past stupidity that has limited his options to the point he only has stupid choices left. To abandon his invasion of Ukraine leaves him so politically vulnerable he'd be a dead man walking and Russia's economy was going downhill to the point 'acquiring' Ukraine was necessary to prop it up a bit longer. Current Putin isn't screwing over future Putin... Current Putin has already been screwed over by past Putin. A less evil person might ha
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The US spent two trillion dollars trying to occupy and pacify Iraq. Ukraine is the same size. If he ever manages to take over Ukraine he'll be attempting something similar with an economy 1/10 the size of the US.
Not really. The US spent most of that $2tn kind-of-sort-of pretending to abide by International Law/Geneva Convention. Putin wouldn't need bother with the charade and could save a ton of money that way. Also, the lives Russian soldiers are basically free for him. You don't like it Comrade? To the Front with you!
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Dominance that would of course fade as quickly as China forced its politics on Taiwan.
Indeed. That's what happened in Hong Kong.
HK was supposed to be the "one country, two systems" model that could prove to Taiwan that the PRC would respect their freedom and allow their economy to prosper.
That's the exact opposite of what happened.
Authoritarians can't help but be authoritarian.
Re:Sta (Score:2)
Even if Putin wins or Putin gets his peace treaty or armistice no one is going trust them again as long as he is around. Many of his customers have diversified away from his gas and won’t be beholden to him anymore so Russian exports drop in half, even if sanctions are repealed.
Damage already done. Russia is screwed.
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Thank you for pointing out a) Taiwan is its own country and b) what can happen when you have democratically elected leaders not trying to micromanage the econonmy.
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dominance that they would achieve by annexing Taiwan that has them really licking their chops.
And if that is where their heads are at it really explains how knackered and sycophantic their prolitical process is because the idea that they could ever annex Taiwan in such a way where their industrial capacity would not be destroyed for 2-3 decades and the mainland made a global paraiah because of it. People proposing any plan are professing wishful thinking by total yes-men.
China invading Taiwain, even if the other nations won't say it, is effectively declaring war on the entire Asian region if not mo
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Did I say the word Russia or sanctions you silly goose. Give the game away.
You think Russia is reliant on imports? Sanctions aren't about imports, it's about exports which China is far, far more dependant on than Russia.
Of course, I don't expect good geopolitical understanding from a shill.
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It's not like they *can't* invent stuff. Look at the global technological importance of Taiwan, a country with roughly the population of Burkina Faso or Mali. Now imagine all of China, a country of 1.4 billion, running under the same system. It's almost inconceivable what a difference that work make, not only to China, but to the world.
It's also inconceivable that would actually happen without a revolution.
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Revolution? In China? Been there done that. 30 years and 60 million dead bodies later they finally got some results
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Yeah, you would expect it to be a big event in a big nation.
It's going to happen sooner or later, though. You can't create so many big problems at once and not have upheaval.
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Why?
They don't invent anything, just copy/pasta someone else's products.
China has been consciously working to change that. Their entire education system deliberately remodelled itself taking western ideas about problem solving and challenges. I'm not sure how successful that has been, but the intent was real and I have seen good independently delivered statistics.
Fun and games (Score:2)
Re:Fun and games (Score:4, Interesting)
I'm not sure how they get out of it (Score:1)
And it's going to be hard for China to get large numbers of immigrants. They have a bizarrely xenophobic population and it's not the kind of government you'd want to live under. People I know have described it as a nice country but you have zero civil rights...
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non-paywalled link (Score:3, Informative)
http://archive.today/vbdO5 [archive.today]
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Apparently corruption and monopolistic behaviour are good for business:
The well known hor
CCP economic control orthoganal to innovation (Score:5, Insightful)
That explains why they're letting foreign capital (Score:5, Insightful)
This is why you don't install dictators. When you're a democracy you can vote to dictator in but you can't vote one out. And it's not long until they're using tricks to steal your money and property.
There's a reason Vladimir Putin is considered the richest man in the world.
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Wished I could upvote this.
Re:That explains why they're letting foreign capit (Score:5, Interesting)
China's huge boom in foreign investment was because of the existence of a vast, untapped labor force and market. But you can only be "untapped" once, and then you need something else to keep your economy going. It's like a Ponzi scheme. The companies that got in on the bonanza early made their short term profits; now there's no reason to invest there unless something changes.
There are many perplexing challenges facing the Chinese economy -- the real estate bubble; an ageing workforce; rising labor costs and debt; income inequality and resulting weak domestic consumption. But I'd conjecture that the single biggest problem with China attracting investment is the absence of the rule of law.
If you look at rankings [worldjusticeproject.org] of countries by their adherence to the rule of law, you will see a striking correlation between the rule of law and consistently high economic performance. In fact, the correlation is so striking that one is tempted to conclude that prosperity is the natural state of a country with the rule of law.
The chief elements of the rule of law are (1) equality before the law, (2) government transparency and accountability, (3) fair and impartial enforcement of the law. China has none of these. Why would you invest *now* when you have no idea whether the government will single your company out for some political reason you might not even know?
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It's why the BRICs are supposed to "take over" a the next superpower, but they've all forgotten that China has currency controls.
Here's a simple question - when you need money, what are the currencies people use? USD probably comes first - everything is valued against US dollars. If you don't want US dollars, what currency do you go to next? Euros, probably.
What about RMB? Probably not on anyone's radar - there are probably tons of other currencies, including UK Pounds, Japanese Yen, and others that people
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Well, if you look at the BRIC states, that's an enormous storehouse of physical wealth and human talent. If the world were fair, they would be dominant economic superpowers. The question is, whose fault is that?
Ventrue capital in China (Score:2)
Is that as bad an idea as it sounds?
Obvious end-game. (Score:1)
Remember Jack Ma? (Score:5, Insightful)
Trust me, every single ambitious Chinese businessman remembers that incident, even if the entire society is refusing to speak about it. Everybody knows that they can spend a lifetime building a business, but lose it in an instant if they say a few wrong words. Can’t imagine why that might drive ambitious entrepreneurs away
For perspective, China isn’t nearly as bad as Russia. At least China let Ma go and he got to keep a fair chunk of his fortune. In Russia, when Putin’s buddies want a company, they organize a “purchase” for pennies on the dollar and the previous owner is grateful if he doesn’t wind get punted off a hotel balcony.
But it’s not what I would call an “entrepreneur-friendly” place anymore. They had a little fling with capitalism for a few decades and they were doing pretty well at it, but that might be in the rearview mirror now. Hopefully not.
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Thats why we are getting inflation through lowered world GDP. China, Russia not wanting to cooperate makes it so goods and services need to be produced locally in more inefficent locations. Not being able to get commodities from Russia is also raises prices, which leads to less goods being produced. Inflation happens when there is not enough goods produced for the amount of money or desire for those goods and services.
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Yeah sure, all that money printing had nothing to do with it.
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I'm not saying that that didn't but the global economic contraction was a big part of it. I agree that money printing was also a contributor.
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In the absence of increased monetary supply, global economic contractions (e.g. supply shortages) can't cause actual inflation. Yes, specific classes of goods or services could rise in price, but without extra money being available, it would necessitate other goods and services to decline in price (because there would be less money chasing those goods/services). Indexing all prices across the majority of goods/services available would show no actual increase in inflation.
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That might be over. Seems like total-control trumps everything again, and economics gets the backseat.
All you need to do is look at North Korea, Iran, Russia, Cuba, Venezuela or any number of African countries to see what happens when you prioritize control over economy. Not a good outcome. Ch
What did they expect? (Score:2)
You aren't going to get any foreign investment in china. And internally why invest R&D dollars in inventing products that only China will buy, yeah they are a large market, but they are suffering economically. You go just outside China to Thailand, Vietnam and other Asian countries and you can have access to world markets.
This is really stupid... (Score:2)
For a long time. China spent a good chunk of their GDP on wooing the best the world has to offer, be if the Thousand Talents programs, funding globally for ventures, building civilization in areas which would never see it normally. China has been planting the seeds that would keep them going economically no matter what happened to US and Europe.
Xi had a window of opportunity that would have changed geopolitics forever. Had he just sat tight and wooed Europe with welcome arms, gone easy on Hong Kong, and m
Smart (Score:2)
favoring lower-risk sectors like advanced manufacturing over traditionally popular areas such as biotech and consumer technology
So in other words, they moved to investing in things that continue to provide real returns instead of chasing shitty vaporware unicorns. Certain other countries would be well advised to put more effort into 'low risk' things like manufacturing technology, or else resign ourselves to sourcing everything from the countries that did.