Luring VC firms back for start-ups urgent in trade war
Chinese venture capital (VC) investment in US biotech companies fell by more than 50 percent in the first half of the year, the Financial Times reported Tuesday, as Chinese investment faces growing scrutiny and hostility in the US.
China is the world’s second largest VC market, with more than 3,500 VC enterprises managing total assets worth nearly 2 trillion yuan ($291 billion), according to the National Development and Reform Commission, China’s top economic planner. Chinese VC funds have become an important supporting force for tech start-ups.
Although China and the US have agreed to restart trade consultations on equal terms, trade war fears raised by the US have not been completely settled. The US distrust of Chinese investment is deeply embedded in Washington’s economic policy.
This will last for some time in the future. As the US tightens national security reviews, Chinese VC companies have to turn their gaze back to domestic start-ups. This is not necessarily a bad thing, if China can seize this opportunity to promote scientific innovation and encourage vitality in the economy.
There are a lot of hot tech start-ups in China right now. The trade war has made it increasingly urgent for China to lure VC back to support tech start-ups. China must pursue a path of independent innovation and mobilize economic resources as much as possible.
China went through a yearslong surge in VC investment, but in 2019, some statistics showed VC deals plunged in terms of volume and value in the first half of this year. China’s VC industry is rising fast but the market is still immature compared to those in the US and the UK.
For instance, there are no laws that require start-ups to disclose some detailed information about the money they have raised. The problem of information asymmetry makes VC firms anxious to achieve quick success and gain instant benefits.
China needs to improve the business environment for VC firms with measures such as establishing an effective exit mechanism in the industry, otherwise it will probably miss the opportunity to attract VC investment back. The author is a reporter with the Global Times. bizopin[email protected] globaltimes.com.cn