Venture capitalists unfazed by crackdowns, bet a record $130 billion in 2021

In 2021, China took an ax to its tech sector. But that’s only half the story. The other is how investors didn’t seem to care.

The year 2021 broke a record for venture capital investments, reaching $130 billion, about 50% higher than the $87 billion total the year before, according to Bloomberg.

• Investments in biotechnology hit $14.1 billion last year, up tenfold from 2016.
• The U.S. still dwarfs China in venture funding, though. Silicon Valley reached its own new record of $296.6 billion last year, twice the total for China.

The context: As the government pivots from softer internet businesses toward “hard” technologies like semiconductors, the word “tech” — which papers over those distinctions — may obfuscate key aspects of China’s economic transition.

• A New York Times article on the latest crackdowns claimed that China was “killing the entrepreneurial drive that made China a tech power” in the past decade. But China doesn’t see its internet giants as “tech” innovators, nor does it regard them as adjuncts to power.
• The next investor bubble has already arrived in China: chips. Chinese chipmakers, integrated circuit designers, and other semiconductor startups bagged $8.8 billion in funding last year, more than six times those in the U.S.
• Most of the funds are not used efficiently. Two Chinese chip-making hopefuls with big dreams — Wuhan Hongxin Semiconductor Manufacturing Corp. and Quanxin Integrated Circuit Manufacturing (Jinan) Co. — sputtered out last year amid overinflated expectations.

The takeaway: The stats may be a reflection of the first half of 2021 before the full extent of the crackdowns were realized. That means 2022 numbers may be lower. But the fact that investors are barreling into semiconductors suggests that crackdowns themselves can become market signals. Risks are still ubiquitous, of course, but it seems that for China investors, the fear of missing out trumps the danger of getting burned.