The number of new companies has collapsed, and venture capital fundraising has gone to near zero. Will the recent equity market correction turn things around? 

The pandemic and the years following it have truly not been kind to the mainland’s private sector. 

Entrepreneurs have faced extensive and prolonged lockdowns, a distended, unending real estate crisis, and the multi-year equity sell-off, at least until recently. 

Deep Fault Lines

A visualization by digital publisher Visual Capitalist citing information from data providers Preqin and ITjuzi released on Sunday shows the current situation in stark terms. 

Still, the fault lines may run so deep that the startup landscape resembles a form of continental drift more than an unintentional result of the «lying flat» movement, the recent collective approach to economic and materialistic minimalism practiced by many young millennials and Gen Z.

No Influencers Here

The crackdown on Jack Ma and the subsequent censure of celebrities and internet influencers at the end of 2021 probably didn’t help, something finews.asia commented on extensively at the time.

Neither did the venture capital squeeze, even though it is nothing new, and something we also looked at in depth in early 2022.

The SOE Factor

But there is another, possibly more important factor, that many may not be paying close enough heed to - the reform of sovereign-owned enterprises or SOEs.

They remain the preponderant majority of the overall economy and, as an EY piece from 2022 indicates, they have been «positioned as the primary driver» of China’s economy and, importantly, its future in tech.

Bigger and Better

The intention is to make them «stronger, better, and bigger» while focusing on sectors that are seen as strategically important, as EY indicates.

Investors are also allowed to take a financial stake in them, and many have adopted modern forms of corporate governance.

Little Space

All of this, taken together, leaves precious little space for entrepreneurial freedom, not to mention being an interesting long-term geopolitical question of whether the centralization of critical tech on the mainland will be better than the more decentralized approach being taken by leading Western economies, including the US.

None of this helps any of the young startups, of course. And why would anyone with any kind of entrepreneurial bent even consider starting something in tech if all the interesting avenues had been closed off to them, with any remaining niches probably facing sporadic phases of regulatory censure? 

Financial Implications

This, however, is a problem for wealth managers and private banks as one of their key client segments on the mainland is withering on the vine.

Moreover, they can't onboard and grow substantial relationships with key officers and business executives at SOEs unless both sides of the equation jump through what is likely an almost unending series of regulatory hoops.