May 23, 2022

sugar stock Tech companies are selling off both domestically and internationally this week as the country’s ties to Russia heighten investor uncertainty at the expense of China’s tech industry. China is also grappling with the COVID-19 outbreak, which has led to massive closures of tech centers, and some of its big tech companies are trying to cut their listings on inland shores amid regulatory pressure.

The scale of the recent depreciation of Chinese stocks has been called “panic selling” and “relentless” for reference. In numerical terms, the Hong Kong Hang Seng index fell more than 5.7% today, hitting a new 52-week low; The Shanghai Composite fell 5% to a 52-week low.


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Analyzing the devastation of the public market this morning, we can expect Chinese venture capitalists to reduce their investment momentum. After all, when the market’s risk tolerance changes, we often see financial managers become more conservative, right?

Maybe.

The big surprise in 2021 was that despite the regulatory flurry from the central government, Chinese startups had a pretty good year to raise capital. You can be forgiven for expecting the opposite. After all, the scope of the crackdown on Chinese technology companies of the 2021 era was one of the most important tech stories of the past year, causing a massive redistribution of not only economic power in the country, but also private capital.

Of course, we’re curious to see if the recent sell-off in China will have the same impact on private market investment as we expected last year, although we have little confidence in the outlook for the country’s economic future. Let’s dive into the most recent data and see what we can find.

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If we were to follow a few days of downturns in the public markets and then think about the impact of market movements on historical venture capital investments, it would sound a bit silly; Short-term fluctuations in the public market do not affect lagging results in the private market. But the recent drop in Chinese stocks is more than a new move, so we can take a look at the first quarter venture capital data and do a little comparison and contrast.

At its all-time low, the NASDAQ Golden Dragon China Index tracks the value of U.S.-listed companies whose “majority” of operations are “located in the People’s Republic of China.” And oh boy it’s a hot mess. I have not seen such a scheme yet:

image credit:YCharts

You can see a clear trend from the start of 2021 to today, including the recent sell-off that caused so much noise.

Putting our data together, geopolitical, regulatory and pandemic uncertainty in Chinese equities is causing investors to rush to exit. Moreover, the decline in value we are discussing is not a new phenomenon, but can be seen as an acceleration of past trends (see chart above).

So, are we finally seeing a slowdown in Chinese venture capital growth?

Maybe!

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