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China' private secret is suffering. Among other things, "“China used to be the best VC destination in the world after the US,” says one Beijing-based executive, but “the industry has just died before our eyes. The entrepreneurial spirit is dead.”
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The article goes on to note that "in 2018, at the height of VC investment, 51,302 start-ups were founded in China, according to data provider IT Judi. By 2023, that figure had collapsed to 1,202 and is on track to be even lower this year."
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While it has been clear for years that the role of the private sector in the economy has contracted relative to the role of the public sector, if you want to understand why China's adjustment has been, and will continue to be, so difficult, it is important to understand why
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As Beijing set GDP growth targets that were increasingly unrealistic during the past 15 years, the only way to achieve these targets required relying on increasingly non-productive investment, and this meant shifting economic activity from the private sector, which...
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necessarily operated under hard-budget constraints, either to the public sector, which usually didn’t, or to large entities whose access to credit was managed by the regulators, and so who also largely evaded hard-budget constraints.
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The contraction of the private sector, in other words, was the inevitable consequence of China’s deep imbalances and difficult adjustment, and not the cause. This means that the solution for China is not to “re-energize” the private sector, as so many economists insist.
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It is instead to get on with rebalancing the economy in the least painful way possible, although (perhaps inevitably) what is least painful economically is unlikely to be what is least painful politically. The point is that until a large share of the country’s resources (at…
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least 10 percentage points of GDP) are shifted from government to households, the economy will struggle, the private sector will remain weak, and economists and the business press will continue to blame China’s economic slowdown on Beijing’s clampdown on the private sector.
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FDI in China is about 80% below what it was just a few years ago. It is now one of the least popular destinations for foreign investment because the risk has increased, while the reward has decreased.
Another reason ''the entrepreneurial spirit is dead'' is China's social credit system.
China lacks a “personal bankruptcy law” that offers individuals a fresh start.
If your business fails and you can't pay back loan, you and your offsprings will get blacklisted..
absolutely agree. Having built up a software and services firm in China with investors such as sequoia china, huawei and other top CN VC. I can totally agree. There is no exit now and we will see brain drain. Before china used to attract their highly educated and western
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Do you seriously expect China to remain a VC destination from the likes of Sequoia and Andreessen Horowitz, in this political environment?! Are they stupid?
As if this has anything to do with China investing in its own economy? Like seriously? Do you think we are stupid?
I've been spending most of my time with founders in China since it reopened last year, and I can tell you from personal experience, when you see the charts in this article, you can either assume there's nothing there, or realize that it's the most significant opportunity to build
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Attacks From Short Sellers - This was just the tip of the iceberg
Would be interesting if you bring in the export sector overdrive into this reasoning.
Xi has crippled Jack Ma and other luminaries. He must have worried about losing control.
This idiot has no idea what he is talking about. China establishes more than one million new companies every year. As for non-productive spending, it is even more ridiculous. The annual spending of the US federal government and local governments is $12 trillion, which can all be
What the article describes as the current environment isn't venture capital at all. It's personal loans dressed up as VC.
What I see is the overall state of China's finances expressing itself in a particular location, the VC industry.
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