With a falling number of unicorns – start-ups valued at more than USD1 billion – having caught the eye of China’s top leaders, analysts expect more domestic resources to be deployed to nurture home-grown enterprises amid shifting geopolitics. At a rare face-to-face meeting with entrepreneurs, President Xi Jinping asked why the number of new unicorns had been dwindling in recent years. “Now that the President has signaled his concern, I think state support will be beefed up to nurture them,” said Xin Qiang, Professor with Fudan University’s Institute of International Studies in Shanghai. Analysts expect domestic venture capital and resources to be mobilized, especially related to technology, while a reliance on foreign venture capital would also be reduced having previously been the driving force behind the growth of China’s unicorns.
At last month’s meeting, China’s Politburo had already called for “patient capital” – funds oriented towards the longer term with greater risk tolerance – to support emerging industries. In May, China also set up its third planned state-backed investment fund with a registered capital of CNY344 billion to boost its semiconductor industry. Overall, China has 369 unicorns with an average value of USD3.8 billion, with firms specializing in artificial intelligence (AI) and semiconductors dominating the list, according to a report by KPMG and the Zhongguancun Unicorn Company Development Alliance in Beijing. But China continues to lag behind the U.S. in terms of the size of its unicorn cluster, according to the 2024 Global Unicorn Index published by the Hurun Research Institute. From a global total of 1,453, there were more than 700 unicorns in the U.S., compared to 340 in China, while the number of new unicorns emerging in China stood at 56 last year, down from 74 a year earlier. Since 2018, due to the trade war between China and the U.S., intensifying geopolitical competition, Western tech containment efforts and de-risking and decoupling strategies, the growth of Chinese unicorns has slowed.
“The tech landscape in China is no longer a safe haven for the innovative minds,” said James Zimmerman, Partner at international law firm Perkins Coie in Beijing, pointing to Beijing’s policy shift in recent years. Start-ups that sought to follow in the footsteps of previously successful firms have watched as Beijing “crushed the ambitions of tech companies”, he added. “One after another, Beijing crushed them into submission as instrumentalities of state corporatism,” said Zimmerman, who is a former Chairman of the American Chamber of Commerce in China. The report also found that more than 70% of the 369 Chinese unicorns received investment from funds with an international background, although Zimmerman warned that China’s waning ties with the West would impede future cross-border collaborations.
Prof. Xin also lamented the collapse of a “common ecosystem” between China and the U.S. that used to nurture unicorns and other tech start-ups. “The U.S.’ expertise lies in zero-to-one innovation and inventions of originality, while China is good at application and commercialization. Such collaboration drummed up excitement and acted as a cradle of unicorns. Many have both American and Chinese backgrounds.” But last year, U.S. President Joe Biden signed an executive order to curtail American investment in sensitive technologies in China, including semiconductors and AI.
A U.S. congressional panel last year also launched an investigation into four U.S. venture capital firms over their semiconductors and AI businesses in China. Xin said that the decoupling trend had affected would-be unicorns in China, and that it needed to devise ways to lessen dependence on the U.S. while also leveraging more domestic venture capital and resources to nurture firms, the South China Morning Post reports.
