SHANGHAI -- The funding received by unlisted Chinese enterprises in the first quarter of this year plunged by nearly half from a year ago as corporate investors hesitate to take risks on startups while China is in a trade war with the U.S. and its economy is slumping.
Unlisted companies raised a little over $9 billion this year through Friday, down from about $17.5 billion a year earlier. The figures are based on publicly available data compiled by Nikkei on yuan- and dollar-denominated funds from corporations and venture capital firms.
The number of infusions surpassing $100 million dropped to just over 20 this quarter from more than 30 a year earlier. The funding started to dry up when the economic slowdown and stalled growth of property values came into sharp relief in the latter half of last year.
"The inflow of capital declined to the venture funds themselves, and the competition to invest eased off," said Lin Yi, partner at Bioventure Investment Management, headquartered in China's Jiangsu Province.
The most notable investments this year came in February when the SoftBank Vision Fund, the $100 billion tech investment vehicle of Japan's SoftBank Group, spent $1.5 billion on Chehaoduo Group, which runs a used-car trading platform. Horizon Robotics, which designs artificial intelligence chips, raised $600 million the same month.
Otherwise, the lack of funding has dealt a critical blow to China's up-and-coming high-tech sector. WM Motor, an affiliate of search giant Baidu, is the only electric vehicle outfit to successfully execute a major fundraising round this quarter, down from the three injections industrywide a year earlier.
This comes as the Chinese government is winding down subsidies for electric vehicles. BYD's shutdown of an electric bus plant in Guangdong Province also had an impact. Nio, an electric auto maker that went public on Wall Street last fall, was seen as a contender against Tesla. But it called off plans to build its own plant in its home city of Shanghai, and will continue to rely on a contract manufacturer. Nio ended up turning in a pretax loss of 9.6 billion yuan ($1.4 billion) for 2018.
Interest has lapsed as well for the once red-hot sharing economy. Investors used to lavish hundreds of millions of dollars on bike-sharing leaders Mobike and Ofo, until they both ran aground financially. Mobike has since been swallowed up by the food delivery app Meituan Dianping. Unpaid bills have placed Ofo's founder on a government blacklist.
From 2017 through last year, China's sharing economy has greeted a raft of new entrants offering everything from autos and smartphone batteries to shared umbrellas. Most appear to be on a lengthy path toward monetization.
Funding of unlisted targets surged around 2014. Tech leaders Baidu, Alibaba Group Holding and Tencent Holdings spent freely on promising startups, and overseas investors like U.S.-based Sequoia Capital and Singapore's sovereign wealth funds followed suit. Capital also flowed from wealthy individuals made richer by the real estate bubble.
Last year marked the stock market debuts of billion-dollar unicorns providing services ranging from streaming videos to smartphone shopping. Coming off their successful investments, funds with deeper pockets renewed their search for more startups. Fundraising for unlisted companies peaked during the third quarter of last year at around $27 billion.
Investment throughout the whole of 2018 topped $80 billion, approaching the U.S. total near $100 billion. But during the final quarter, China's real gross domestic product grew by only 6.4%, resulting in the slowest annual economic expansion in 28 years.
The effects of the tit-for-tat tariffs between Washington and Beijing began to be felt at the same time, which cooled the appetite for investing.
What comes next "will depend on when China's economy will recover and the listing of major unicorns," said an official at a Shanghai investment bank, echoing a widespread view. The government signed off on a large-scale stimulus package during this month's National People's Congress. The Shanghai stock market is on an upward trend, and bearish outlooks are losing steam.
ByteDance, the startup behind the video-sharing platform TikTok, is largely expected to list later this year. Ride hailer Didi Chuxing, and Full Truck Alliance Group -- China's Uber for trucks -- are also waiting in the wings. If these startups execute blockbuster IPOs, they could spur a sea change among investors.