Preqin: total US dollars raised by China-focused VC and PE funds peaked at $48.6B in 2021 before dropping to $16.5B in 2022 and just $1.15B so far in 2023
The Information https://www.theinformation.com/ ... Dan Wang / @danwwang : A stark drop for VCs as endowments and pensions decide to stop investing in China: https://www.theinformation.com/ ... A good story by @JuroOsawa [image]
Context & Ripple Effects
This is the endpoint of a decline that has been running in the related coverage for years: VC investment in China already fell sharply during the 2019 trade war (a 77% YoY drop in Q2 2019), slid through 2020-2022, and hit what was then a multi-year quarterly low in Q2 2022 ($9.1B per KPMG).
What Preqin's new numbers add is the fundraising side of the ledger — the money going into China-focused funds rather than into deals — collapsing from $48.6B in 2021 to $16.5B in 2022 and just $1.15B so far in 2023, which the reporting attributes to endowments and pensions deciding to stop investing in China. Deal activity had already been tilting toward chips, with $7.9B of October's $62.1B going to semiconductors (per Preqin's October data).
First-order effects
- US endowments and pensions are halting new commitments to China-focused VC and PE funds, leaving general partners who target China with no Western institutional pipeline — $1.15B raised so far in 2023 versus $48.6B at the 2021 peak.
- Chinese startups and their existing fund managers lose access to the dollar-denominated capital pool that funded prior cycles, forcing portfolio companies toward renminbi-denominated alternatives.
Second-order effects
- State-backed capital is moving into the gap: Chinese authorities have launched three venture funds of over $7.1B each aimed at early-stage hard-tech startups valued below ¥500M, substituting government money for withdrawn Western LP capital.
- Within the shrinking deal pool, allocation is shifting toward policy priorities — semiconductors captured $7.9B of October's $62.1B in Chinese VC deals, up from $6.3B in 2021 — so consumer and software startups face steeper competition for fewer dollars.
Third-order effects
- If the pattern holds, China's private-markets structure bifurcates: foreign institutional capital exits entirely while state-directed funds steer remaining capacity into hard tech and chips, making capital allocation in Chinese venture increasingly an instrument of industrial policy rather than return-seeking LP demand.
- A durable split between dollar funds and renminbi/state funds would also reshape exit paths and valuations for China-focused portfolios, as the two pools answer to different mandates and liquidity horizons.
The trend: China-focused venture and private equity is decoupling from Western institutional capital and re-concentrating around state-directed hard-tech funds, with fundraising — not just deal flow — now confirming the break.