The Strategist

Analysts: Venture capital deals decrease in China as Chinese economy is slowing down

11/06/2019 - 06:40

Venture capital deals in the Asia-Pacific region shrank by one fifth in Q3 amid a slowdown in China's economy and massive protests in Hong Kong, according to the South China Morning Post.

Total transaction value fell to $ 14.92 billion from $ 18.61 billion in the previous quarter, according to data released by KPMG. The consulting company attributed this to the slowdown caused by the trade war between the US and China. This drop is sharper than the 14% reduction in total global transactions to $ 55.71 billion.

Companies from mainland China participated in 7 out of 10 transactions in the region, and Indian startups took part in the rest. However, none of the transactions exceeded $ 1 billion compared with four in the first six months of this year.

China's GDP in the III quarter grew by 6%, at the lowest rates in almost three decades. The trade war forced some companies to shift production from China to other countries to avoid US duties.

Meanwhile, the economy of Hong Kong in the III quarter fell into recession for the first time since the global financial crisis amid mass protests in the city. Hong Kong's GDP in July-September fell by 3.2% compared to the previous quarter, which was the worst result since 2009.

Venture capital investments in Asia are expected to remain moderate at best in the last quarter of this year, especially in China, where economic and geopolitical tensions are expected to persist, warned Irene Chu, a Hong Kong-based KPMG partner.

"However, the central government of China is not standing still," she added. "It is moving forward with policy reforms aimed at improving and modernizing regulations for a wide range of industries, including insurance, finance, capital markets and healthcare."

These changes are likely to have a positive impact on the venture capital industry in China, Chu said.