2018 Annual Review

Foreign venture capital investment into China soars

Overseas VC funds have poured into Chinese startups—at points, overtaking their US counterparts

In the second quarter of 2018, companies based in China secured more VC funding (US$30.9 billion), for the first time, than their North American counterparts (US$27.2 billion), according to Goldman Sachs data. Although KPMG data shows that the US reclaimed the top spot for total VC investment in Q3, China nevertheless accounted for seven of the 13 largest VC financings globally in that quarter. China also became the leading market for large venture rounds, with an aggregate investment of US$100 million or more.

For investors seeking growth beyond the mature, competitive US market, China offers a large developing economy, a population of more than 700 million internet users and extensive financial support from its government. The fintech sector benefits from China's rapid evolution into a cashless society.

According to iResearch and Forrester Research, China's shoppers conduct 11 times more mobile payments than their US counterparts, creating opportunities to sell additional tech-enabled financial services. In the healthcare arena, China's large population and stretched healthcare services encourage investment in biotech, personalized medicine and medical cost-cutting technology tools.

During the past two years, VC investment in China nearly doubled, and predictions suggest that China could lead the US in areas such as artificial intelligence as early as 2025. Still, the Chinese market presents challenges for foreign investors. These include:

  • The dominance of Chinese tech giants Alibaba, Tencent and Baidu, which can make deal competition difficult for foreign investors
  • Protectionist flashpoints between the US and China
  • Tougher rules on scan-and-go payments from China's central bank
  • The combination of foreign investment and rising domestic development investment in technology could bring about serious challenges for foreign investors

Despite these hurdles, foreign investors still have good reason to be optimistic about China.


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