After a five-year run of growth, VC investments have tumbled in China

Chinese venture capital deals fell 77% to $9.4 billion during the second quarter of 2019.

This is the first time in five years that venture capital investment has trended lower in China. In 2018, the Chinese venture capital market became the second largest by total inflows, according to Pitchbook.

Failing trade negotiations with the U.S. and broader economic concerns have cast a cloud on the investment climate.

Chinese Venture Capital investors are cautious

Several factors have contributed to the slowdown in Chinese venture capital investment. Those factors include the Huawei imbroglio, slow progress in the China-US trade talks, and the recurring allegations by the US of Chinese theft and misuse of intellectual property.

VC investors are also cautious about recent startups that have listed their IPOs. Companies like Xiaomi have seen share prices slump after their public debutes. Valuations were likely overheating, a trend that has given some investors pause.

VCs are now looking at less capital intensive, lower-risk startups in areas like the enterprise software space. In addition, they are looking at next-generation technologies like 5G as sources of future growth. Still, VC capital has declined since the  start of Q3 2018, as the U.S. and Canadian market recaptured its prominance.

Meanwhile, Chinese shared-economy startups, which often require funding rather than profits to fuel their growth, may find it increasingly difficult to find financial backing.

All the while, the broader push among Chinese VC firms to supplant the North American market is largely on hold for now.